United Methodist Foundation of Indiana

2010 Market Review January 5, 2011

The stock market finished 2010 with a very strong final month and a strong year. Of course the year was a roller coaster ride with a mix of good and bad months. For most of 2010 the market traded on news and fear of more bad news and ignored market fundamentals. As 2010 neared the end of the year, the market began to give more credibility to strong fundamentals. For much of the year, traders were concerned with the possibility of increased inflation, a possible double-dip recession, and of course, the credit crisis in Europe. Those fears now seem to be much abated.

From its low in March 2009, the S&P 500 is up 86%. The Nasdaq and Russell 200 indexes more than doubled in the same time. The S&P 500 ended the year with its strongest December since 1987. The December rally represented almost half the index’s appreciation for the entire year. The S&P Total Return Index was up 15.06% for 2010, an outstanding year. As they have done after previous recessions, small cap stocks led other domestic equities for most of the year. The Russell 2000 index (small cap’s)almost doubled the gains of the S&P.

With such a strong stock market in 2009 and 2010, we would assume most investors achieved outstanding returns during those two years. Wrong! For most of 2009 and 2010, investors continued to pour money into bond funds in spite of historic low interest rates. Many investors have continued to flee stocks and move money into bonds seeking safety. However, with historic low interest rates, and almost no possibility of rates going lower, those investors have set themselves up for a second round of severe losses. This is typical for individual investors ( and many church committees). They often move into stocks after a prolonged rally, often shortly before a severe downward correction. Those investors will often ride the market down and decide to get out near a market bottom. They then often sit on the sidelines waiting for the market to stabilize before moving back into stocks. It has been proven in many studies that investors would earn far more if they would develop a good market strategy, then stay with it through good markets and bad.

Several studies have shown that the average performance of mutual fund investors is approximately half the performance of the mutual funds they invest in. How can that be you say. It is because typical investors move into mutual funds after much of a rally has occurred and get out after a prolonged market decline. Thus their performance is half what it would have been if they had stayed fully invested throughout the market cycles.

I have also seen studies comparing hypothetical performance if an investor had invested at market peaks versus investing at market bottoms. Of course those who invested near market bottoms did better. However, even those investing at market peaks and remained invested through subsequent up and down markets outperformed typical investors who moved in and out of the market. There is an old saying, “investing success is about time in the market, not about timing the market.”

Need Help?

If your church would like assistance in developing an investment strategy, reviewing your current investments, or exploring other investment options, we would be happy consult with your decision makers to assist. Our Foundation provides these services free of charge to United Methodist churches throughout Indiana. Just call me or send me an e mail.

Happy investing!

Royce

Royce L. Ruckman, CPA, AEP

Director of Investment Services

United Methodist Foundation of Indiana, Inc.

1001 N. Western Ave., Suite D, Marion, IN 46952

toll free 866-669-2327,  local 765-664-2327,

cell 765-661-6804

e mail rruckman@niumf.org

Visit our web site at http://www.niumf.org