April, 2013
By Darren Nyce, CFA
Senior Research Analyst, Castle Investment Advisors®, LLC

I recently came across a list of investment quotes that was intended to provide wisdom and inspiration for 2013. Here is a sampling:

  • There are only two kinds of forecasters – those who don’t know and those who don’t know they don’t know. - John Kenneth Galbraith
  • The beginning is the most important part of the work. - Plato
  • He who wishes to be rich in a day will be hanged in a year. - Leonardo da Vinci
  • Everything should be made as simple as possible, but not simpler. - Albert Einstein
  • What the wise man does in the beginning, the fool does in the end. - Unknown
  • I have enough money to last me the rest of my life, unless I buy something. - Jackie Mason
  • Represent your family well. - Darren Nyce

OK. The last one was not on the list, but it is a frequently heard exhortation in the Nyce household whenever one of our kids is about to interact with other families. This is our attempt to remind them that their actions and attitudes impact others outside of their immediate surroundings.

I have thought of this often in the past few months while watching our elected officials deal with the issues related to the so-called fiscal cliff and found myself wanting to implore our leaders to “Represent our Country Well!” At the end of the day I am reminded that our country is greater, and our economy is bigger, than a few hundred politicians. Individuals and corporations will continue to do as we have always done - adapt and move forward.

While some bumps along the way are certain to occur, many great things await around the next corner. Our year ahead will undoubtedly allow us to witness remarkable achievements like those we got to see in 2012, for example:

Felix Baumgartner and his world record sky dive

Oscar Pistorius - Olympic sprinter and double leg amputee

The folks at NASA and the Curiosity Rover

While the determination of how well we have been represented is still in the balance, Congress was able to pass a bill on January 1, 2013 that succeeded in averting some of the fiscal cliff issues. Many argue that they only solved the easy parts related primarily to taxes and “kicked the can down the road” on the harder issues like spending cuts, the debt ceiling, and entitlement reform. These issues will need to be addressed by early March. The process might get ugly, but here’s hoping that the right things will be done in the end.

This chart from the Wall Street Journal compares the 2012 and 2013 tax structures and the income levels that make those rates kick in:

Most of the changes impact those with higher incomes, while nearly all workers are impacted by the return of the employee’s share of Social Security Tax to 6.2%. Those with incomes between $200,000 and $450,000 will likely need some sort of a tax wizard to analyze their situation.

The stock market indexes responded by jumping significantly, giving 2013 a positive start after solid gains in 2012 as the chart below shows.

Index 4th Qtr
1 Year Return 3 Year
Annualized Return
5 Year
Annualized Return
S&P 500 -0.4% 16% 10.9% 1.7%
Dow Jones Industrial Average -1.7% 10.2% 10.9% 2.6%
Nasdaq Composite -2.7% 17.5% 11.2% 3.7%
Russell 2000 1.9% 16.4% 12.3% 3.6%
MSCI EAFE 6.6% 17.3% 3.6% -3.7%
Barclays US Aggregate Bond 0.2% 4.2% 6.2% 6%

The economy is recovering slowly from the 2008 recession and continues to grow. While a new recession is inevitable at some point in time, the current major indicators do not show that it is imminent.

  • Housing
    • Housing starts seem to be transitioning from “stabilizing” to “increasing”
    • Home prices have begun to rise in some parts of the country
  • Light Vehicle Sales
    • Above average for the first time since the recession
  • Household Debt
    • Down to 10.4% from a 2007 high of 14.1%
  • Corporate Finances
    • Interest Coverage Ratios have increased significantly and debt to equity ratios have dropped dramatically
  • Employment
    • Unemployment rate is 7.8%
      • For college grads this number is 3.8%, for those with less than a High School degree it is 12.2%
    • Labor Force Participation Rate continues to drop
  • Inflation
    • Holding steady at just under 2%
  • Gasoline Prices
    • Average price is $3.40/gallon, down about 15% since Apr
  • Interest Rates
    • Rates remain very low with no sign of rising soon

As we transition from 2012 and its stories involving the Presidential election, Hurricane Sandy, Whitney Houston, Trayvon Martin, Jerry Sandusky, and Newtown, Connecticut, we head into 2013 and wait for new stories to be written. We at Castle will continue to evaluate how the developments of the coming year impact the investment portfolios of our clients. We would like to thank you, our clients, colleagues, and partners, for your continued confidence in us and we wish all of you a safe and prosperous 2013.

The Castle Investment Advisors®, LLC Investment Team

Tax, legal, and estate planning advice contained in this article is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation.
This article was prepared for informational purposes only and does not constitute an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information regarding products and services. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. 
Any strategy discussed herein may not be suitable for all investors. Before implementing any strategy, investors should confer with their financial advisor. No current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels.