By Jill Schlesinger
Tribune Media Services
Between the presidential election, Washington gridlock over the fiscal cliff and plenty of market gyrations in between, 2012 was a long year. Here are the year’s financial winners and losers, as I see them:
Winners
Diversified investors: Once again, the wisdom of a diversified investment portfolio paid handsome returns. U.S. stocks, as measured by the S&P 500 index, rose 13.4 percent for the year, while the broad U.S. government bond market provided a return of 2 percent. Investors in a fund like Vanguard Balanced (60 percent stocks, 40 percent bonds) enjoyed a return of 8 percent in 2012.
Bond investors: Experts have been predicting the end of the bond bull market for the past three years, but it hasn’t happened yet. The yield on the 10-year Treasury finished 2012 at 1.76 percent, down from 2011’s 1.88 percent and 2010’s 3.3 percent. Although the 2 percent return of the broad market pales in comparison to the corporate high risk or “junk” bond yields of 16 percent, bond investors have been amply rewarded for holding steady.
Apple investors: I’m not a fan of investing in individual stocks, but Apple stock has been an incredible performer. The stock reached an all-time closing high of $702.10 on September 19 before dropping like a stone in the fourth quarter and ending the year at $532.17. Yes, the stock closed out the year down 24 percent from that high water mark, but do not lose sight of the fact that the company’s performance rose 31.4 percent during 2012 and a staggering 166.3 percent over the past 5 years.
Consumers: The Consumer Financial Protection Bureau (CFPB), the first new federal regulatory agency for Wall Street since the aftermath of the Depression, found its voice in 2012. The CFPB consolidated most federal consumer financial protection authority in one place to become a national watchdog whose sole focus is the consumer. The bureau created many helpful consumer-facing tools.
Borrowers: Every time I thought mortgage rates bottomed, the market surprised. Throughout 2012, mortgage rates drifted lower and lower, which helped kick-start the recovery in housing and lower monthly payments for borrowers. While it’s still tough to qualify for a mortgage loan, those who do may see some extra cash to help fund other financial obligations.
Losers
Savers: To boost the economy, the Federal Reserve has kept short- and long-term interest rates at historic lows. Unfortunately, savers have suffered, as five-year CD rates average a paltry 1.35 percent and many savings and money market accounts pay less than 0.5 percent.
IPO investors: The Facebook initial public offering was a great lesson in why ordinary investors should steer clear of these risky endeavors. The May 18 IPO price of $38 dollars a share meant the company was valued at $104 billion dollars, the biggest-ever valuation by an American company at the time of its offering and the second-largest U.S. IPO ever behind Visa. Facebook stock rose to a high of $45 that day before sinking to a low of $17.55 in September and then recovering to $26.62 at year’s end, a loss of 30 percent for those early investors who bought at the IPO price.
JP Morgan Chase and the “London Whale”: A “flawed, complex, poorly reviewed, poorly executed and poorly monitored” derivatives trading strategy executed by the bank’s Chief Investment Office, a London-based unit that manages risk for the firm, cost J.P. Morgan Chase $6.2 billion. It was an uncharacteristic black eye for JPM and its charismatic CEO, Jamie Dimon.
Europe: The euro zone went to the brink and back in 2012, as leaders worked to avoid a spreading debt crisis. Authorities essentially bought time to resolve the crisis but still have not figured out a solution to an unbalanced union.
U.S. Congress: Congressional sausage-making was on display for all to see after the presidential election. Despite knowing about the so-called “fiscal cliff” for nearly a year and a half, lawmakers missed the technical deadline of midnight on December 31 to come up with a plan. By the end of New Year’s Day, the Senate and House had both approved a bill to raise taxes on all workers (the payroll tax cut was allowed to expire) and wealthy Americans and to delay decisions on government spending cuts for two months.
While some of these winning and losing trends will continue in 2013, things never stay the same so keep an eye out for new ones in the new year!
Jill Schlesinger, CFP, is the Editor-at-Large for www.CBSMoneyWatch.com. She covers the economy, markets, investing or anything else with a dollar sign on her podcast and blog, Jill on Money, as well as on television and radio. She welcomes comments and questions at askjill@moneywatch.com.
This was printed in the January 27, 2013 – February 9, 2013 Edition
