Will We Make 2013 the Best of Times, or the Worst of Times?

“It was the best of times, it was the worst of times … It was the epoch of belief, it was the epoch of incredulity.” These famous opening lines from A Tale of Two Cities, penned by English novelist Charles Dickens more than 140 years ago, capture the essence of the year we just completed.

In 2012, a solid investment performance in nearly all asset classes meant that the year turned out much better than most experts could have foreseen. With market returns ranging from 3% to 18% among stocks, bonds, real estate and numerous commodities, well as assets under management within our Wealth Management Division reaching record highs, 2012 might seem like the best of times.

Yet many investors remained unconvinced. We continued to see net outflows from the domestic equity market throughout the year, with many investors missing the gains. Why? Simply put, the answer is a lack of confidence due to the continued uncertainty in the marketplace. Consider the risks and events of 2012 that kept confidence low: the European fiscal crisis, our own “fiscal cliff,” a contentious domestic presidential and congressional election, mixed economic data and exploding federal debt. These issues and political polarization would lead some to view 2012 as the worst of times – a state of incredulity.

What Matters?

There is no need to revisit all of the issues of 2012; it is the future that matters from this point forward. We stand at the confluence of cross currents rarely, if ever, navigated by the financial markets. Investors will be well served to look for opportunities that provide increased diversification, yet do not limit liquidity; plan for modest returns aided by the reduction of portfolio volatility that additional diversification will bring; not be lured by the winners of the past, expecting them to be winners of the future; and keep in sight the positive events that will ultimately add value, rather than focusing on the negative external influences that can cloud our vision.

We encourage you to attend one of our upcoming Economic Outlooks scheduled in Arizona, Minnesota, North Dakota and Idaho this month to hear our investment managers address the challenges and opportunities of the global markets. These may not be the best times, but they are certainly not the worst. As we look ahead in 2013, investors may once again be surprised at the resilience of our markets and the opportunities that the year will provide. Even though the path is not well marked and may be littered with potholes, its foundation is firm. Let’s let 2013 be the year of renewed confidence and restored interest and conviction.

Thank you for the trust you have placed in us; we appreciate your business.

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