October Newsletter

Asset ClAss PerformAnCe:

Quarterly Newsletter

Volume 5, Number 4

October 2011

ASSET CLASS PERFORMANCE: Q3 2011

U.S. Fixed Income 3.82%(Barclay Capital Aggregate Bond Index)

International Fixed Income 2.95%(JP Morgan GBI ex-US (Hedged) Index)

U.S. Equities, Large -13.87%(S&P 500 Index)

U.S. Equities, Small -21.87%(Russell 2000 Index)

International Equities, Large -19.60%(MSCI EAFE Index)

International Equities, Small -19.77%(S&P/Citigroup EPAC Ext. Mkt. Index)

Real Estate Investment Trusts (REITs) -15.07%(NAREIT Equity Index)

Commodities/Natural Resources -11.33%(DJ UBS Commodities Index)

QuiCk PLANNiNg QuESTiON:HAvE yOu SEEN OuR NEw ANd iMPROvEd wEbSiTE?

www.FjyFiNANCiAL.COM


Volume 5, Number 4

October 2011

Quarter in reviewBy: Jon P. Yankee, MBA, CFP® Gloom, Doom, and the Hidden Rays of Hope. By any reasonable measure, the past three months have been among the gloomiest fiscal quarters on record for the investment markets. The debt ceiling debate, constant dithering in Europe over whether or not Euro-zone members should be allowed to default on their sovereign debt, partisan bickering, the downgrade of U.S. government debt, continued un-employment, and a general unsettled feeling about the economic recovery have all combined to put investors in a pessimistic mood. When people are pessimistic about the future, they sell -- as they did, steadily and persistently, through what will be remembered as the gloomy summer of 2011.

It is hard to remember now that in the first quarter, just a few months ago, the markets were flirting with a full recov-ery from the 2008 debacle, or that before this quarter started the markets were in positive territory overall for 2011.

The widely-followed S&P 500 index comprised of the largest compa-nies domiciled in the U.S. was down 13.87% for the quarter, giving it a loss of 8.68% so far this year. The Russell 2000 small cap index fell a remarkable 21.87% in the third quarter, placing it down 17.02% for the year. Internation-ally, the results were much the same. The EAFE index, which represents large cap stocks across the developed world, plunged 19.60% for the quarter, and is down 17.18% for the year. Continued Pg. 4

angela at a glanceBy: Angela C. Collins I am excited to have the opportunity to be the first Fall Associate at Fox, Joss & Yankee. I was born and raised in Amarillo, Texas. I attended West Texas A & M University where I completed my Bachelor of Accounting as well as a Master of Business Administration. I am currently attending Texas Tech University for a Ph.D. of Personal Financial Planning with an emphasis in Marriage and Family Therapy/Addiction Studies. My responsibilities also included helping organize Opportunity Days, which is the largest financial planning event at Texas Tech, as well as the Professional Experience courses which take students to professional conferences each year.

As a Ph.D. student of Personal Financial Planning at Texas Tech University, I teach the Introduction to Financial Planning course for Undergraduates. I realized that I had limited knowledge of how a finan-cial planning practice really operates since I have never been a practitioner. I decided that in order for me to better educate my students and eventually run a financial planning program in a university Continued Pg. 4

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Do Business owners neeD cyBer liaBility insurance?By: Paul Chadowski As a business owner, can you afford to pay thousands of dollars to notify your clients that their private information has been breached by an unknown third party? What about the costs to restore the faith your customers have with you handling their private information after it was breached? Can you afford the cost of time and money to investigate where the breach originated from and how to avoid it in the future?

If you are answering NO or are unsure, then you should consider Cyber Liability Insur-ance. This addresses the first- and third-party risks associated with e-business, the Internet, networks and informational assets. Cyber Liability Insurance coverage offers cutting-edge protection for exposures arising out of Internet communications. The concept of Cyber Liability takes into account first (you) and third-party (your customer’s) risks. The risk category includes privacy issues, infringement of intellectual property, virus transmission, or any other serious trouble that may be passed from first to third parties via the Internet.

Who needs Cyber Liability Insurance?

Anyone with a website now has the legal liabilities of a publisher. The Internet - that technological wonder of worldwide com-munication - has spun a whole new “web” of liability exposures. Creating a website is simple. The liability exposures that come with it are not. Privately-owned companies that venture onto the web face liability ex-posures that are emerging, evolving, and can be very complex. Commercial companies that disseminate information to the public via websites face the same legal exposures as publishers, yet most have little or no con-cept of their resulting legal responsibilities. Legislation continues to create potential liabilities, in user privacy and domain nameinfringement.

Why do I need Cyber Liability Insurance?

Traditional liability products do not address Internet exposures. The risks involved in Internet business have blossomed with the Internet itself. That’s why you need to protect yourself. The universe of potential plaintiffs is staggering, given the number of people and organizations that are currently surfing the Internet. A potential legal action from just one of them could be costly. The potential liability associated with website content is already great, and continues to grow rapidly. For a company operating in today’s high tech world, your computer network will more than likely provide internal and external email, and you will probably have your own website providing information about your company, its products and services with even the possibility of e-commerce.

What companies offer Cyber Liability Insurance?

There are many options available for Cyber Liability Insurance. Some of the most active providers include: Ace, Arch, AxisPro, Bea-zley, Chartis, CAN, Chubb, Hartford, Hiscox (Lloyds), USLI, Philadelphia, Travelers, XL, and Zurich.

Some common claim examples include:

Theft of Digital Assets:A regional retailer contracted with a third-party service provider. A burglar stole two laptops of the service provider containing the data of over 800,000 customers of the retailer. Under applicable notification laws, the retailer – not the service provider – was required to notify affected individuals. Total expenses incurred for notification and crisis management to customers was nearly $5 million.

Human Error:A nonprofit community action corporation printed two 1099 forms on one piece of pa-

per. An employee was supposed to separate the forms and send each to its rightful owner. Instead, one person received both copies. The mistake sent tax forms and social security numbers to strangers. Half of the intended recipients received their forms-- in addition to the private information of the others.

Malicious Code:A juvenile released a computer worm direct-ing infected computers to launch a denial of service attack against a regional computer consulting and application outsourcing firm. The infection caused an 18-hour shutdown of the company’s computer systems. The computer consulting and application out-sourcing firm incurred extensive costs and expenses to repair and restore their system, as well as business interruption expenses which totaled approximately $875,000.

How much do these claims cost?

On average, $204 per compromised record. For example, if you have 1,000 records, the total cost would be $204,000.

Some questions asked to get an indica-tion for a quote are:

• Do you have a firewall?• Do you have a virus protection program in place?• Do you outsource a critical part of your internal network/computer system?• Have you ever experienced a privacy breach or security breach?• What types of personal Identifiable Infor-mation do you hold: (e.g. Social Security numbers, Drivers Licenses, Personal Health information)?

For more information, contact Paul Chadowskiat [email protected] or by calling 7083-385-2066. His website is: www.chadowskiinsuranceagency.com.

www.chadowskiinsuranceagency.com.

FJY Advisors& stAFFMARjORiE L. FOx

sr. Financial aDvisor

dANiEL d. jOSSsr. Financial aDvisor

jON P. yANkEEsr. Financial aDvisor

LAuRiE A. bELEwFinancial aDvisor

TESS L. dOwNiNgassociate Financial aDvisor

THOMAS N. SAuNdERS, jR.client relationship associate

LiSA j. CRAFFORdoFFice Manager

SALLy M. yANkEEaDMinistrative assistant

thinking in real terMs By: Tess Downing, MBA, CFP®

Since the onset of the financial crisis in late 2007, the Federal Reserve has used interest-rate cuts and other policy tools in an effort to fuel economic growth. Economists can debate the effectiveness of these policies, but everyone can agree that today’s low interest rates are a two-sided coin.

Consumers, businesses, and government all benefit from low borrowing costs. But on the other side, savers and investors earn almost nothing on their cash balances. This has been the case in most months since 2008, when the Fed cut short-term interest rates to near zero. Worse yet, investors are actually losing wealth in real terms. The in-flation-adjusted yields on short-term Treasury securities have been negative in most months since October 2010. (Nominal yields reflect the stated interest rate, while real yields are adjusted for inflation.)

Earning negative real yields on short-term fixed income is not unprecedented, as shown in Figure 1. In fact, inflation has exceeded nominal interest rates in several post-war periods. This graph plots nominal and real yields of one-month Treasury bills, which are considered the equivalent of cash. The gap between the two lines is the infla-tion rate.

The real (inflation-adjusted) yield is com-puted using trailing 12-month changes in the Consumer Price Index. (Source: Federal Reserve Economic Data). Negative real yields have occurred during periods of high interest rates (early 1980s) and during periods of low interest rates (2010–11). Regardless of the scenario, negative real yields cause investors to lose purchasing power. Keep in mind that the graph shows yields only and not total re-turn, which also would reflect price changes resulting from interest rate movements.

spur a recovery. At these times investors may be tempted to flee the capital markets You may note that some negative real yields have occurred during recessionary periods, when the Fed was cutting interest rates tofor the perceived safety of cash. Investors may have a host of reasons for their flight—some might want to avoid economic uncer-tainty or stock market volatility, while others might fear that impending higher interest rates will cause bonds to lose value.

This is the case for many individual investors and professional money managers today. They are reportedly shifting their portfolios to money market funds and other cash instru-ments with the intent to return to stocks and bonds when the economy shows signs of improvement.1 The problem with this strategy is that no one can consistently time markets, and the signs are never clear. So while investors sit in cash, their purchasing power quietly erodes.

Investors may have good reasons to hold cash. But they should understand

ing cash has a price in real terms. ultimately may lose wealth even as

to protect it.

Endnote:1. Jonnelle Marte, “The New Cash Hoarders: Smart or Not-So-Smart?” SmartMoney, June 29, 2011.Past performance is no guarantee of future results.

Figure 1: One-Month Treasury BillsNominal vs. Real Yield

that hold-Investors

they try

You may note that some negative real yields have occurred during recessionary periods, when the Fed was cutting interest rates tospur a recovery. Investors may have a host ofreasons for their flight–– some might want to avoid economic uncertainty or stock market volatity, while others might fear that impending higher interest rates will cause bonds to losevalue.

www.fjyfinancial.com

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Fox, Joss & Yankee, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/ she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices.

1925 Isaac Newton Square, ESuite 400Reston, Virginia 20190

1.703.889.1111 phone

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[email protected] email

applications when I return to Texas Tech in December.

I will return to my coursework in January 2012 with anticipated graduation in 2013. I am work-ing on several papers for publications as well as a grant to help design pro bono programs for financial planning programs. My research interests are pro bono work, aging populations and financial decision making, and compliance related issues in financial planning. I am cur-rently enrolled online full time at Texas Tech working on a Master in Education Research and Measurement. After the schoolwork and papers, I like to spend my free time exploring the metro area and reading any type of fiction.

angela at a glance cont setting I needed to understand how practices really operate. I decided that if I tell my students to “walk the walk” that I better be able to do it as well.

The beginning of my real world education started in December 2010 when I became the first Scholar in Residence at the Certi-fied Financial Planning Board of Standards in Washington, D.C. During my tenure at the CFP Board, I received numerous opportunities to see the importance of financial planning as a profession from the education, research, and practice point of view. I participated in current initiatives such as the Public Awareness campaign, exam research and compliance issues in Professional Standards.

In September, I came to Fox, Joss & Yan-kee to understand the practitioner piece of financial planning. Many of my students take internships with firms and come back with a greater understanding and breadth of knowledge. I am greatly anticipating being able to see how all the pieces will fit together after being at the University setting (Texas Tech), the standards setting body (CFP Board) and in practice (FJY). This opportunity will give me the ability to better educate students in real world

Quarter in review cont Even the assets that often zig when the stock market zags were down comparably for the quarter. The NAREIT index of real estate invest-ment trusts was down 15.07% for the third quarter moving it down 6.05% for the year. Commodities told the same story: The Dow Jones/UBS Commodities index fell 11.33% in the quarter bringing it down 13.62% for the year.

Just when you thought that yields on govern-ment bonds couldn’t go any lower, they did: bonds of up to one year maturity are essentially paying zero interest, while five-year Treasuries are paying 1% a year, and 10-year Treasury is-sues lock you in at 2.125% a year.

It is usually more difficult to read the minds of the investing public than the cable financial programs and financial press makes it appear; however, this summer there was clarity about the cause of the malaise – Congress finally agreed to a messy compromise on the debt ceiling. It was evident that many people were questioning whether our lawmakers have a firm grasp of the financial and economic challenges facing our nation. When investors look over-seas, they see that European governments are, if possible, even less functional in their approach to repairing the global economy.

Is gloom and doom the real story about the

economy, or is it just part of the story? We should note that the U.S. GDP actually grew 2.3% for the past three months, a much faster growth rate than the anemic first quarter (0.4%) and only slightly-more-promising second quarter (1.3%). Do those numbers look like they are moving the economy toward a double-dip recession, as many investors seem to fear?

Another fear is that the Euro zone will col-lapse under the weight of Greek debt. But there is good news on that front as well; the German parliament voted to support the expansion of the European Financial Stabil-ity Facility, the 10th and most important of the Euro zone members to ratify the bailout agreement.

Meanwhile, supply shortages of oil have eased from the start of the year, causing oil prices to drop. Consumers have paid down enormous amounts of debt over the past three years, bringing them in line with where the consumer debt burden has been for the past 30 years. Corporate profits and cash balances remain at record high levels, and there are signs that the unemployment problem is starting to ease--although it will be years before we see unemployment fall to levels seen in the early part of this century.

Despite what you hear on the cable financial news channels, nobody really knows how long stocks will remain on sale or how long it will take for the global economy to finally sort itself out. We DO know, from past experience, that eventually the economy recovers from even the most severe shocks, and (again, eventually) the markets return to health. History tells us that a recovery is in-evitable, and it seems to be visibly underway somewhere behind the hubbub of the nega-tive press, partisan bickering, and occasional market panics.

When investors figure that out, there will be another bull run and (this we can predict with confidence), people in that happy time will forget all over again that stocks can go down as well as up. That’s when you’ll hear your advisors at FJY talking about the downside risks.

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October Newsletter