1. Our Question of the Quarter...
2. Year-end Market Results
3. Why REIT'S Are Still In Your Portfolio
4. Asia Minor?
5. An Inverted Yield Curve -- Will Recession Follow This Time?
6. Your Planner in the News
7. Royce Premier Fund Is Closing

I am happy with how our clients fared this year. As many of you know, I run two basic portfolios. For those clients that were fully invested in the market for the entire year and held moderately aggressive positions, the average return was 3.2%. The conservative "senior" allocations brought in an annual return of 5.8%, after fees but before any anticipated taxes. It should be noted that no two portfolios are identical due to individual risk tolerance and time horizon. And to be compliant with the SEC I will remind all readers this should not be viewed as an advertisement for past or future performance by the firm. It should be used as a benchmark for you to gauge your personal portfolio success.

This year’s market favored conservative plays - including natural resources and utilities, accounting for the better than average returns in the "retirees" allocations.

For those of you that closely track the Dow, this is the first time since 2002 that it has posted a loss. Of the Dow’s 30 components, 16 lost ground for the year, with the biggest decline coming from General Motors. GM hit a 23-year low, experiencing a 51.5% decrease in share price value.

Many clients may silently be questioning why REIT’s are still in their portfolios. Everyone has heard the buzz about the housing bubble bursting and the slowing in new housing starts. I would like to take the opportunity to remind you that REIT’s expand well beyond the private housing market, and it is time to focus on apartment REIT’s.

The rise in housing prices coupled with the rise in interest rates are making new homes less affordable for many individuals. This opens up an opportunity for apartments, which had felt pressure from the low interest rates making home ownership so readily available. Apartment REIT’s posted double digit returns last year, and also paid out attractive dividends according to the National Association of Real Estate Investment Trusts.

As I stroll through my high school memory bank, some where I remember a discussion on Asia Minor. Asia Minor is an oxymoron for this region of the world right now. It is a dynamic and growing region and no longer a minor player in the world of investments.

As most you know, almost all portfolios are holding some type of Matthews Funds, whether it is Asian Growth & Income or Pacific Tiger. These mutual funds have been in place for many years, showing steady growth year after year, and have long been a core position in most portfolios. The Growth & Income fund has been closed to new investors for over a year. Clients that currently hold positions in the fund can continue to make future contributions.

For those of you that are new to my management the answer is no — no, it is not too late to move money into Asia. There are several reasons why I am still encouraged by the Asian markets. First you need to think about the composite countries: China, Korea, India, Singapore, Taiwan, Hong Kong and Japan. Then focus should be placed on consumption levels and GDP growth. As well as a diverse consumer base which continues to develop in these regions. Cities like Shanghai, Seoul, Macau, Hanoi and Mumbai all now have shopping districts in these populated areas. Discretionary spending has increased as well. A change in some of these cultures is underway, shifting to a more moderate modern state.

My latest foray into this investment market comes in the way of the India fund. This is not for the faint of heart. First, this fund has only been in existence for a few months, so we do not have a track record to monitor the managers’ performance. The second consideration is that although you are purchasing the fund on an American exchange in reality it ultimately settles on a less efficient Indian exchange. So buyer beware. My money is still on this new entry into the market, and I have high expectations for the fund over the long term. Remember investments are to be bought and monitored, these are not day trading investments. If anyone would like to discuss this market sector or would like more information about this fund, please contact me at my office.

Those of you that monitor the market may have been reading about the inverted yield curve that occurred in recent weeks. An inverted yield curve occurs when short-term maturities (2-year Treasury notes) pay a higher interest rate than longer-term maturities (10-year Treasuries). This event usually occurs prior to an economic downturn. If memory serves me correctly, I believe it has happened in six out of the last nine occurrences.

However, few economists expect a recession in 2006. Their reasoning is that we are currently experiencing a cycle of healthy growth and benign inflation suggesting that the market is not signaling a slowdown, which is usually the case prior to most recessionary trends.

The most recent recession that resulted from the inverted yield curve signal occurred in 2000. This was a period of aggressive rate cuts by the Federal Reserve, contrary to where we are in this rate cycle. Still, some economists believe there is a 15% — 20% chance that we will see a recession sometime this year.

What to do? At this point I will continue with my existing strategy, which is — manage to the market. At this writing we are having a strong first week of January. I will continue to focus on opportunities in the global markets, as that is where I see dominant growth. In terms of individual stocks, I have not found any individual equities whose pricing has been in line with what I would like to add in to portfolios, but I do have a dozen or so on my watch list. In closing, recessions do not mean all stocks go down. There are stocks and sectors that benefit from these trends. Only time will tell, and assets will be reallocated as trends dictate.

I was recently recognized in the 2005 — 2006 Guide to America’s Best Financial Planners. This guide is put together by the Consumers’ Research Council of America, an independent research company that evaluates professional services.

To be identified as an advisor of merit, consideration is given to education, professional designations/financial certifications, continuing education, years in practice, and professional affiliations. This recognition was a pleasant surprise and it is quite an honor to be listed among this group of exceptional financial advisors. For information about the organization you can visit their website at www.consumersreseatchconcl.org

To update my clients on the year ahead, I plan to take 2006 off from teaching at Bryant University and spend that time hopefully finishing my book that it seems I have been laboring over forever. Also, letters will be going this month to schedule our annual performance reviews. Please contact my office to schedule a time where we can review your asset allocations and discuss any changes that may effect future planning decisions.

I encourage all clients to use this newsletter to supplement their knowledge base, but also to take time to call me when questions arise. My teaching skills extend beyond the classroom and I will attest to the fact that an educated client develops from a trusted relationship whose basis is formed from an open line of communication over a period of time. The relationships I have developed with my clients and colleagues are the cornerstones of my business. Their confidence in me is my primary source of new business. Your referrals are welcome and always appreciated. I thank you all for contributing to Coastal Financial Planning, Inc.’s success in 2oo5.

Effective January 10, 2006 Royce Premier Fund is closing to all new investors. This follows last year's closing of Royce's Low-Priced Stock Fund. Information about the fund family can be found on their site at: www.roycefunds.com

What percentage of gift cards goes unused?

a. 8.5%
b. 10.4%
c. 18.2%
d. 20.5%

This year a total of $18.5 billion worth of gift cards were given out over the holiday season according to the National Retail Federation. Both consumers and retailers love the concept, because the receiptant chooses something he or she will like and the retailer knows not all gift cards will be redeemed at all or some at a partial face value. According to a study by the TowerGroup, 8.5% of the value of these cards go unredeemed. This accounts for $4.8 billion annually. So if you guessed A, you are correct, and probably put your gift cards to good use.

This question actually appeared on Yahoo Finance in December and for the record, I guessed wrong. I had a lot less faith in the consumers’ ability to stay organized and remember where they put their gift cards. I think I would attribute this pessimism to being the mother of three boys, as boys exhibit difficulty finding anything they own, let alone something of value.

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