For market timers this is a difficult period. Many stock investors are worried about a pullback from the new high water mark. Bulls have been badly burned twice in the past thirteen years as the market pulled back hard in 2000 at the height of the tech bubble and again in 2007 when faced with the financial crisis. Bond investors, after a 32-year bull market, are now worried about low interest rates turning into potential losses if interest rates begin to rise.

For long-term diversified investors the markets are very rewarding and much less stressful. If you stayed invested and tuned out all of the market noise, your diversified investment portfolio likely grew again in April. In our chart below we recap the monthly and the trailing twelve months numbers.

International stocks from developed countries lead the charge in April returning 5.21 percent after many months of underperformance. Companies from emerging markets continued to lag returning a meager 0.75 percent for the month. The S&P 500 continues to be a bright star with a 1.93 monthly return. For the trailing 12 months, U.S. stocks have fared well as the S&P 500 is up 16.89 percent.

The investment grade bond market looked like it was beginning to show some cracks after an amazing 32-year run, but a weak March employment number and hints of continued slow economic growth gave bonds a second wind. In April, long-term U.S. Treasuries lead the way with an astounding 4.00 monthly return. The other sectors of the bond market (corporates, high yield, mortgage-backed securities and intermediate Treasuries’) generated returns around the 1.00 percent level. Bonds are not going to duplicate performance from the past ten years, but they will continue to provide income and general price stability to a diversified investment portfolio.

Our best advice for clients is to stay invested while owning a diversified portfolio of stocks, bonds and a touch of commodities. Unfortunately, we do not know the best performing asset class for next month, next quarter or the next year, but the long-term investor with a diversified portfolio will allow themselves the opportunity to participate in the entire market. Don’t be a bull or a bear, just be invested.

The first quarter started with the one of the most hyped economic/political events in recent memory, the Fiscal Cliff, and we ended the quarter with a near banking collapse in Cyprus. Sandwiched in between these events the U.S. Congress debated sequestration and raised taxes. Despite all of the distractions, corporations continue to grow earnings to record levels and the consumer is healthier and spending more. Behind the scenes, some major U.S. stock markets indices quietly surpassed their historic high water marks.

If you stayed invested and ignored the financial news networks, internet, newspapers and pundits your investment portfolio likely grew in the first quarter and over the past year. In our chart below we recap the numbers. Risk was rewarded again in March and for the trailing twelve months. Large capitalization U.S. stocks were the best performing group while international stocks lagged. Emerging markets had a difficult month and are lagging over the past year, but we see opportunity there in the quarters ahead. Remember, fundamentals drive stock price over time. Corporate earnings continue to grow, housing is rising from the ashes, employment slowly improves and PE ratios are beginning to expand all providing for positive price momentum in equities.

The investment grade bond market is beginning to slow down its pace of appreciation after an amazing 32-year run. This is reflected in the returns of the Aggregate Bond Index and the Municipal Bond Index. It is not the end of the world for bonds, but investors need to lower their future return expectations. Bonds have consistently returned five to six percent over the past ten years and at these interest rate levels expect a one to three percent annual return as we move forward. High yield bonds have enjoyed equity like returns over the past year and this too will slow down in the coming quarters.

Our best advice to clients is to stay invested at a risk tolerance designed for your specific financial situation. The market rewards patient long-term investors. It has over the past five years and it will over the next five years. Find the right combination of investments strategies and you too will enjoy the financial success of being a long-term investor.

A hot topic in the financial markets concerns the potential creation of asset or market bubbles. The bubble believers suggest central banks around the globe are creating market bubbles by flooding cash into their respective economies via accommodative monetary policies. Just this week European Central Bank President Mario Draghi and Federal Reserve Chairman Ben Bernanke signaled they will continue to provide liquidity to their economies. Japan’s new head of the Bank of Japan said easing can be justified for 2013. Bernanke defended the Fed’s action to Congress saying their actions have helped reduced borrowing cost and promoted economic growth.

As you can see from the chart above, all the major stock market indices have benefitted from these accommodative policies. As the S&P 500 and the Dow Jones Industrial Average approach their all-time highs, should they be sold? It is important to view markets on a relative value basis versus an absolute basis. The key question is: are the markets over or under valued? In our 2013 stock market forecast, we expect the S&P 500 to earn $111.00 for the year and a return to a 10-year historical price earnings ratio of 14.3 times. This conservative valuation would equate to an S&P 500 index level of 1,587 and it closed February at 1,515. From here, the questions are; will the market move to an overvalued state (which it usually does) or do earnings continue to grow keeping the market at a conservative fair value? Regardless, we believe the equity markets are fairly valued and do not deserve bubble status.

The concept of a “bond bubble” is receiving even more attention in the media. The term implies a pending doom to fixed income investors. Instead of visualizing an end of the world event, let’s think about the market gradually releasing some air from a slightly over inflated balloon. The key drivers to the future interest rates and credit spreads are: inflation, economic growth and Federal Reserve action. Looking ahead for the next twelve months these key factors appear to be in the bond market’s favor. Low inflation, low to moderate economic growth in the U.S. and a Federal Reserve long-term holding pattern leads to a fairly stable interest rate environment.

For the first two months of this year the 10-year U.S. Treasury Note yielded from 1.75% to 2.05% and finished February near the middle of this range. We expect a narrow trading range in bonds as 2013 unfolds driven by stable moderate economic growth, benign inflation, and an accommodative Federal Reserve. We do not believe the bond market deserves bubble status, but it is prudent to lower your bond return expectations to low single digits, shorten duration and improve the credit quality of your fixed income portfolio.

Remember successful investing occurs over long periods of time. The past four years provided long-term investors the opportunity to rebound from a difficult period. We see the market glass as half full and expect markets to grow as global economies continue to improve. Our recommendation is to stay invested at an appropriate risk level for your situation and reap the rewards of being a long-term investor.