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Stocks are

actually tradingat a reasonableby mostllteasurBs.Whitre some ofthe financialtalk shows onTV ]rar,s beensaying stocksare ia a"bubble" oreYen

overpriced,much evidence

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Are $tocks Overpriced AndHappy lUe$r Year;

Forming A Bubble? lVour What?nvented by the ?013 Nobel-prize-winning economist Robert Shitler,rhe Shiller PE is a widely-watched

S&P 500 Versus Earnings

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measure of the stock market's health,and it recently tumed negative,indicating the U.S. stock market isoverpriced aad ripe for a fall. Shouldyou worry?

As &e stock rnarkei was soaring [onew highsjust before the start of 2014,the Yale University professor's keybarometer of the stock marke.t valuerose above 5096, indicating that stockswere overpriced. While disegreeingwith a Nobel ec*nomic laureate'sopinion on investing is an unenviableposition, the negative signai frorn theShiller FE is a statistical aberration, an

anomaly caused by the reeency of theworst financial crisis in generations.

The Shiller PE uses a l0-yearavrrage monthly p-e ratio as thedenominator in an equation me*srringwhether stocks are expensive" Thisperiod includes the 2008-21)09 financialcrisis, a once-in-78-yesr economic and

fi nancial occurreflce. Inchding thatonce-in-a-lifetime errent in a 10-year

aYBregE FE calculation skews thenuurbers unrealistically toward thenegative.

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exists to the contrary.To see what a stock-price bubble

looks like, look at the flgure above, Ittracks lhe price ofthe Standard &Poor's 500 index - a meesure {)fArnerica's blue-chip companies -yersus acrual and projecred corporateearnings on the 500 c*mpanies in theS&P 50O index. The gap behmeen theblack line. which represents stsckprices, and the green liue, whichrepresents eamings, depicts the gtowthof the tech-stock bubble frosr 1997 to1999. The correlation between the S&P

-500 and stock prices broke down in thetech bubble. No such breakdown isoccurring now.

Another key nreasr"lre of r*,hethsrstocks are overpriced is shown trtlow.The two green lines represent thehistorical trading range of- stocks duringa benign inflation environment like wehave been in fbr the past t'ew years. The

I new year is a gteat time to

I i.u*ito,n o* purt. ir airowsFl us to throw ouithing* that arenot working in our lives and nurturethe things that are-

The new year gives us a *'reset'"

button or Mulligan- This is a greflttime of year ta slow down. take alook at whal we want our ?014 taloak like. and then be part of moldingthar vision.

To assist yau with your financialgoals, our hrm will beginimplementing a number of "meet andgreets" throughout the year designedto keep our clients ini'ormed in thepraducts ihat they persoaally have intheir portfolios.

As the year uufolds, take fulladvantage of the resources that ouroffice makas available to you. Welt}-er Advisor services, Attorneys,CPAs, Reatrtors and ltsuranceprofessionals ts assist you in your{rritical decision-making needs.

I hope drat ?0ltt will hring youand your farnitry health, h*ppinessand prcsperity.

Kn*ru that our firm standscommitted toprovidingexceltentproducts andservices to ourclients and tlreirfamitries in thecoming year.

fCo*tixted or page 4l

Don't Chase After The Market Newsid you read the ne*'spapertoday or check the ne.ws

online? Invariably, the stockmarket wiil be heading up or down,with the movement triggered byanythrng flrom companv eamingsarulouncements to a change ineccnomic indicators or eyen a politicalevent such as the recent U.S.government shutdown. And" moreoflen than not, financial pr:ndits rnayrespondby urging invesiors to buy orsell samething.

But you can drive yourself crazy.if you haven't already, by makingstock rnarket decisions based on ll'hatjust has occurred tr what you thinkwill happen next. In fuct, chasing afterthe news is a comrnon inYestmentmistake. There are at least fcur good

treasons to avoid this temptation likethe plague:l. The stotk market usuallv moYes

ahead offhe nervs.Thsre was no "all clear"'signal

that the severe sto6k market downtumof 2O08-20O9 had abated. But themarket hit brrttorn o* M*rch 9, 2009.and embarked on a long, profitableclimb even as ather financial net'sremained dire. Typically, stot:ks moveabout six rRonths ahead r--rleconomicdevelopments, reflecting the coliectiveknowledge, trends, and inclinations ofinvestors. If you tr-v to beat the market

o you need to rrydate your lifeinsurance protection? You maybe surprised to leam that your

existing policies are no longer sufficientto meet your needs.

If you're like many peaple. youprobably took care ofyour nife

insurance yeers ago. Yr:u bought as

ffuch coverags as you feltyou needed,

and then you stashed the eontract in adrawer or safe somewhere *rd pretrymuch fcrgct about it. But it would beumrsuatr ifyour fami$ finanaialsituation hadn't changed signilicantlysince then. For example, you mightnow have too little insuranse if you\eadded another child or mrc to your

by reacting to the latest new's, you'llprobably be much too late to benefit-

2. l'ou donnt have all the necess&rY

infornrafian-Markets tend to rnove based en ttre

decisions of mutual fund tnanagers orprotbssional analysts *'ho monitor and

interpret financial data lbr a living.They have a lot rnore information thanyou do, and fhey get it rnuch sooner

brood. But it could also work tho otherway. If your children ha;rre left thefamily nest oryou-ve retired, you maybe able to cut the &mount cf yourcoYerage.

Now is as good a time as any todust offthat old poliry and review it.You may find it doesn't reflc,ct one 0rseveral nrajor life eyents you'yeexperienced since you acquired thecoYerage- Those rnight inslude:

' Ysu have married, divorced,0r separated;

' There has beeil a birth, death,disability. marriage, or divarceinvalving soraeotra else inyour fumily;

' One or more ofyom children has

than you-and millions of others likeyou-u'ho will hear it on television orfind it on the Internet. That puts you sta decided disadvantage.3.'I'ou can't believe all the hype.

In t}tis electronic age, rnediareports are often Prone to hyperbole.as the pressulre to generale interesttiorn a lickle public continues toincrease. That could lead producers tooverreact ttl news tidbits orsensationalize luinor events. Onesmall incident usually daesn't portenda complete ecrlnomic collapse, so take

repsrts of impending doom with a

grain of salt" It isn't likely that the sky!s t'alling!4. Ntarket tirning is tliltcult, if ttotimpossible.

To be successful at market timing,you have t0 be extrsmely skilled orlucky. or both. Over the long tenn.buying or selling based on what Youhear or read almost never beats a

consistent. ntethodical long*tennapproach. lt's bener to tnakeinvestrnent decisions based on

financial particulars ralher than on

instincrs and hunches.Building a diversifred porttblio

cornbining stocks, bcnds. and otherinvestments can help you progres-\

toward your tinancial goals-and it r:an

help yr:u stop worrying about wh*t youhear on the news. a

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Getting A Life lnsurance Check-UPcornpleted college or graduate school;

' You bought or sold yourprincipal residence, a vacation home,or inYestment real estatei

. You switched jobs. slarted yourown business, or retiredi 0r

' Thsre has been abig shift in yourfinancial or business circumstances.

Other family changes could also

have an impact. For instance, you mayhave taken on lire care of an elderly ordisabled relative, rhus adding to yourfinancial commitments and increasingthe amount of replacement incnme thatwouldhe needed if you died.Meanwhile. if you've paid otl'yourmortgege! you may be able t{} reduce

coromics l0l teaches yourhatgrowth iri thteconomy ismeasured by gross domesric

product {ODP), but tsciors included incalculating CDP are rnasking an irnportanttend in the economy that iwestors shouldbe mindful of.

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GDP is the zumtotal ofconsumerspending, inyes-tnent msds by the private-

sector, net eDrptrts. ald govemment

spending. The formula econ teachers have

always taught students is GDP: C + I + C+ Net Expofls. But changes in attitudes

mward govemrnffIt spending over tlrc last

three decades betrie &e reliability ofthe old fonnula for economic : .

growth. Thenotionthatgovemmsflt iryeading *hould be part of a measr:re $

ofeconomic output is qu€€tionable, ;and including gov€rrunelrt spending Iin the GDP growth ligure rnasks the :strengft of the private secior in the *curfenlffiolrery. t ''''

Governrnent spending accounts *.;.

for 18% of tl.S. COP. h rccent

your GoYerags.Wtren ycu review your policy,

examineit as if you werebuying life insurance forthe flrst time. It's yourprojections tbr the futurethat are the crucialfactors-not the waythings were a few yearse*dier. And don't farget toreview all ofyour lifeinsur*nse policier.inelnding srry groupcoverage you get throughyour ernployer (or yourspouse's employer), taking into &ccormtreoent e$tste tex lillu changes.

The amount ofcoverage you needis like$ to drop as you ge1 older, and

The Hidden $trength Of The Recoveryye.ls, hor*'ever, goyemment qpending has

been cut sharply, rn ith tlre deepest cuB

srsained by state and local govenrment

agencies. The chart klow showing state"

local and tbderat government spending'scontribution to the rate of growth in CDPillustrates the sharp culs by gov*mment

following the globallinancial crisis ol'2008-2009.

Many economistswould argue that

reducing govemmeill spending willincrease eeonornic gro*th in the long

run by leaving molE resources availablelbr reinvesfrnent by the moreproductive private sector,

However, in the recent shofl.nmit's ciearthat cuts in govenunent

spending have reduced GDP. To be

clenr, while rcducing g$/errunent

spending is thought to be good forecon*mis pso&'il\ it tduced CDPgrowth in recenlyears. Coven:rnentspending cuts. which manyeconomisE would argue are a positive

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you may eveltually decide you can dowithout life insurance, thougir it could

also play a role inyour eslste plan.Also, consider thersturn you rnayreceive on cash

v*lue, cspeciallywithwhole litbpolicies. What'scefiain is that yourfinmcial situati*nwill continue taetclve. so it makesseixe to rnake aa

insurance review a regular event--ifyou mark it on your calendar each year,

you won't forget to conduet thisimponant checkup. I

ibctor, slro*'up as a negatil'e in ihe

GDPibnnula.Moreover, removing goYsmmefl i

spending tom the calculation of CDPconvrys a Yery difibrent story abour

recent U.S. econornic growlh. Excludingguemmeff Wending tom the GDPtbnnula accoding to data compiled byFiiE Meyer Econnrnic Research. an

independent research finn. puts the rale

of growth of the currtnt econotnic

recoYery in linewithtlrc longtermec.onomic growth rate since l 980.

Frorn 1980 througtr ?008 the CDFgrew at approrimate$ 3.09{. However,

the CDP grcwth rate over the thrc-yearperiod ended Septernlrcr 30. ?013 has

only been ?.1% - weak bY comParison

to the long-Emrtmnd. However, ifYouexclude governrnent spending *orn the

CDPcalculation, the grnwtr rate ot'3.?-o,1. over the 331e*r period is equaled

by the gro*{r rate in consumer spendins

and ir:vesnnent shown over ille period

since the emrnomy rccovery began three

years eadier.CDP is intEnded as emeesure of

econornic output. Since tneasuring

economic output is more diffiEult than

measwing consumpion, hou'ever"ppvsrrunent tonsurnption is used as a

pra:iy forouput. ConzurnPtion and

output are thought to be interchangeable

becausethey are so intertwind. Tlut'saquably flawed becsuse {he gwerrureildoes not produce an1+hing and sell it-

While dehate over the merits ofgoverxnent spending is prlitical$charged. the practical implication ofincluding govemlRent c.oRsutnption inGDP is that it has masked the unrJerlying

streng& in the other comgxrnents of GDPMaybe &is CItplains why stocks nrse so

sharply afterfte financial crisis de*pite

what appmdto be aiacklusterecotornicrecovery. I

ETFs Offer Alternative Investment Optionshe increasing number ofexchange-traded funds {ETFs)that track commoditiss.

currencies, and other altemativeinvestments are making it easier todiversify your porrfolio. Alternativeinvestrnents include real estate,

precious metais, currencies,commodities, private equity funds, andhedge funds, and because the prices ofsuch assets often mcve independentlyofstock and bond price fluctuations,altematives in ETF form may helpreduce the volatility ol your portfulio-But sorti*g through the praliferation ofaltemative ETFs is no easy task.

Before the first cornmadity-basedETF (ths SPDR. Gnld Trust) wascreated in ?004, investing in alternativeassets tended tn be prohibitivelyexpensive and cornplex. Buying gold,for instance, rneant finding a way tcr

store purchased bullion, navigatingricky options or futures markets, orpurchasing shares of mining funds orother indirect investments. The SPDRGold Trusr. iR eon{rast, invests direetlyin gold bullion.

ETFs are similar ta rnutuai fundsexcept they trade like stocks and offer

lower costs, greatsr t,ax efficiency, andrnore transp&reney. Most are designedto follow rnarket indexes passively, bulrnany newer ETFs are activelymanaged.

Institutional investors and verywealthy individualshar,e long soughtexp0su{e toaltemati-rreinvestments. Andrhaugh manyalternatives lDst Yalueduring the esonomiccrisis of 2008 and?009. they have beeneven more in demandsince then because, in the longer-trrm,their prices have tended to rise whenstocks fal1.

Two of the rnost commcn Tpe ofaltemative ETFs track currenry andcommodities markets. Sorne currencyETFs follow whole baskets sfcurrencies while others are linked tothe yen, the euro, or another singlecurrsncy. While currency ETFs are notconsidered a long-term investmenl.they can help you hedge againstcurrency fluctuations arising from

geopolitical events. Those worriEd that&s U.S. dollar would decline in thewake of the rec.ent U.S. creditdowngrade, for instance, mig}tpurchase a basket ofother currenciestlat could potentially gain value

*gainst thedollar-

ETF firmshave alsoembraced a fullrange afcommoditiesexposure. andyou c8n jrowfind ETFs thatinvest in a single

commoditli or in several difi'erent rypesof commodities. These ETFs ollhr asimple, lsrv-cost $Fey to diversi$ aportfrlio and rnay help protect againstrisiag inflrtion.

Other ETFs minric sophisticatedhedging strategies. For exalnple,inverse ETFs allow you to profit whenthe market declines. To betterunderstand the range ofthese nerl,innestment ins{rurnents and how theyrnight fit into your portltrlio, pleasegive us a call. t

ffi

$tocks Forming A Bubble?{Continued.{ntm page I )

lower green line shows where stockswould have traded if investors hadvalued stocks at $15 for every dollar of

Stocks Are Priced Within TheirH istorical Valuation Range

profiis on cornpanies in the S&P 500index, while the upper green line showsa rnultiple of [7 times earnings. Youcan see hou. the price ofthe S&P 500shown in black became disconnectedliom corporate earnin gs.

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'Sdhar's it mean for stocks in ?014?The red lines at the end *fthe green

lines show forecasted earnings t'or thelast quartsr of?013 and ?0I4.Estimated 20tr 3 and 3014 bottom-upS&P 50CI earnings per share as ofOctober 31, 2013 was for $109.67 tbr2013 and $l??.06 for ?014. Pastperttrnnance can never be taken as aguarantee of future results. However. ifthe consensus eamings tbrecast isaccurate and nothing unexpectedhappens to derail corporate earnings,stocks would tre fuaggd higher basedon how investors valued stocks inrecent months. As ?014 wes abcut tobegin. and with stocks trading at I5.9times 3013 eamings, the price of theS&P 504 was well within its historicalvaluation nonn anrl talk of a bubbleseerned unwarranted. a

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Soqrcati \'erd€qi :tEtfarah, inr. ina Thsmlqn Rsrxera i,/$/t/5 idarr! 6ii aons*n5Lll e$lisat€5i 5linda.d a*i 9olr"r lorlfrder prits r!*tn th.${tih \flv{mher ?, 101 3 and lftrnl enrsiegr da!* l}:.Pu8} Stptem!*. l0l}.