As you can see from the chart above, the major stock market indices enjoyed a great month and an impressive trailing twelve month total return. In the face of the fiscal cliff hype and all the negative headlines, how did we get here? At the end of the day stock prices are driven by fundamentals and valuations. The higher equity prices reflect strong corporate earnings, a more confident consumer, a slowly improving housing market, a strong energy sector in the U.S., and low interest rates. Our 2013 stock market outlook, based on current valuations, was for high single digit returns. Even though we are halfway to that level after only one month, we are still constructive on equities. Our forecast was based on S&P 500 earnings for 2013 of $111.00 and a return to historical price earnings ratios of 14.3 times. The market still has another five percent of upside until it reaches what we believe to be a conservative fair valuation. From there, the questions are; will the market move to an overvalued state (which it usually does) or do earning continue to grow to keep the market at a conservative fair value? Either way, there are still growth opportunities in equities.

We have been warning investors to lower their expectations from the bond market for a year now. The warning light is now flashing as the Barclays Aggregate Index fell 0.70% in January. If you owned the fixed income asset class over the past 3,5,10 or 15 year periods your annual returns should have been in the 5%-6% range. Mathematically, these results cannot continue forever. The current reality is the 10-year U.S. Treasury Note yields 2.00% and credit spreads are at historically tight levels. Price appreciation in bonds can come from either interest rates moving lower or credit spreads tightening. At these levels one cannot bank on price appreciation in bonds. The other component of return in bonds is yield. We know yields range from zero to 4%. With this backdrop, expect the bond portion of your portfolio to return 1-3% this year. If you “earn the coupon” it will be a good year.

There are still eleven months left in this year and many more months left in your long-term financial plan so it is not too late to properly position your portfolio. Talk to your advisor and make sure your portfolio is in line with your investment objectives.

1. I WILL ESTABLISH A REALISTIC MONTHLY BUDGET FOR SAVINGS AND EXPENDITURES. It is important to understand where your money comes and goes. Identify all of your expected sources of income for the New Year and also honestly project your expenses. This includes the regular monthly bills paid, plus those one-time items both planned and unplanned. Remember to pay yourself first as saving is the key component to wealth accumulation.

2. I WILL ESTABLISH A LONG-TERM FINANCIAL PLAN. If you do not have one, today is the best day to start building one. Whether you are 40, 60 or 80 years old you need to look beyond next month and decide where you want to be financially 5, 10 or 20 years from now.

3. I WILL ADOPT A LONG-TERM INVESTMENT APPROACH. If 2012 taught us anything it has to be that market timing is a futile exercise. We all like to think we are smart enough to be in the market when it is going up and out of the market when it is going down. Reality is the vast majority does exactly the opposite. Stay with your plan and stay invested. The markets reward patience.

4. I WILL INVEST AT A RISK LEVEL APPROPRIATE FOR MY SITUATION. Too many people do not have enough risk in their investment portfolios. It is important to understand that long-term wealth accumulation comes from ownership, i.e. investing in the stock market. Money market funds and CDs can provide needed liquidity and bonds can provide some stability to a portfolio, but stocks provide growth. This asset allocation decision is the most important investment decision. Forget 2008 and move forward.

5. I WILL REMAIN CALM AND CONFIDENT. Fear and greed are the emotions that can derail the best of financial plans. The 24/7 barrage of information from television, internet, e-mail, tweets, magazines and the old fashion newspaper can prevent you from investing properly if you let it get inside your head. Turn down the noise and be confident in your long-term financial plan.

6. I WILL FOCUS ON THE THINGS UNDER MY CONTROL. What happens in the stock, bond or commodity markets in 2013 is totally out of your control. The average investor will spend 95% of their time worrying about what the markets are doing or will do. Instead of getting caught in this trap, spend your time monitoring your financial plan, your spending, your savings rate and your asset allocation decision. As time marches on, these things under your control will make all the difference.

As we begin a New Year, think about taking a new approach to your financial future. Become a long-term planner and a long-term investor focused on the things you can control. You will be wealthier and healthier as your portfolio increases and your blood pressure decreases.

November was an emotional month for investors. There was pre-election anxiety followed by post-election panic. By month end, cooler fundamental heads prevailed and the markets ended November basically where they started.

The monthly stock market returns masked the wild day to day roller coaster ride. The S&P 500 gained 0.58% while the DJIA was down 0.54%. Small capitalization stocks as measured by the NASDAQ Composite rose 1.37%, the Russell Mid-Capitalization group did a little better at 1.64%, and international stocks generated 2.42% gain as measured by MSCI EAFE Index. The year-to- date equity returns are all showing returns in the mid-teens, an impressive year by any measure.

The bond market appears frozen in time as U.S. Treasury yields for the month were unchanged to slightly lower, thus producing positive returns across the board. The Barclays Aggregate Bond Index, an index of all taxable U.S. investment grade rated bonds increased 0.14% in November. Long U.S. Treasuries were the best performing investment grade sector rising 1.33%. High yield corporate bonds had another impressive month returning 0.80% and are keeping pace with the S&P 500 returns this year. The monthly fixed income sector winner was municipal bonds as the fiscal cliff and the likelihood of higher income taxes gave this sector a boost jumping 1.65%.

The media will continue to over use the buzzwords to sell newspapers and advertising time, but the long-term investor needs to see through the hype and reflect on the valuation buzzwords that drive price. Let’s revisit terms like: earnings, earnings growth, dividends, dividend growth, price earnings ratios, profit margins, revenue growth, earnings expectations, inflation, and real returns to properly evaluate the current markets. When we look at the world stock markets in these terms, stocks appear slightly undervalued and our 2013 expectations are for high single digit returns and we favor international to domestic. Bonds are fully priced at these interest rate levels and investor expectations for 2013 should be to earn the coupon. The capital appreciation trade in bonds is now the rear view mirror and investors need to adapt to low rates with little opportunity for additional price gains.

The best way to deal with concerns of the fiscal cliff, the debt ceiling and any other crisis to come along next year is to take a long-term investment view and oversee your personal financial plan from 10,000 feet.