Indexes Bounce Back in 2009

As 2009 nears its end, it looks like it will be a good year for many equity indexes.

The Russell 3000 index, which measures approximately 98% of the investable U.S. equity universe, reflects what its sponsoring firm terms a “remarkable turnaround” for stocks in 2009, including an especially strong surge for growth stocks relative to value stocks.  According to a press release, amid the across-the-board positive returns for Russell’s family of U.S. equity benchmarks, the growth/value disparity particularly among midcaps stands out as perhaps the headline of the year.      

Rough Start

At the start of the year, the Russell 2000 index reflected the worst January for the small-cap segment since inception of the index, and it would only get worse until the entire U.S. equity market, as reflected in the Russell indexes, reached its lowest point year-to-date on Monday, March 9, 2009 and total returns began to grow.  March was the first month in 2009 to post positive total returns for the Russell 3000, Russell 1000 and Russell 2000 indexes, although Q109 returns would still end negative, according to Russell.      

By April, the small-cap Russell 2000 index illustrated an increase of 15.5%, and hit the second-largest monthly gain in 30 years of available data. In fact, every segment of the U.S. equity market measured by Russell indexes added value for the month of April, ranging from 10.5% for the Russell 3000 index to 10.1% for the Russell 1000 index, according to a press release.     

However, even with large gains in April, the U.S. equity market (as mirrored by the Russell indexes) were still far from recovered.  At the Russell indexes annual reconstitution on Friday, June 26, the total market capitalization of the Russell 3000 index reflected a 35.8% decline for the U.S. broad market for the past year, dropping from $16.5 trillion at reconstitution in 2008 to $10.6 trillion at reconstitution in 2009.  This was 42.7% below the 2007 high of $18.5 trillion, and it marked the first time since 1997 that the newly reconstituted index reflected less than $11 trillion.

After reconstitution, the Russell 3000 index continued to indicate positive growth throughout all cap-tiers of the market, turning out positive total returns for the third quarter, even after a dip into negative territory for all three major indexes in October 2009.  By November 2009 the broad market Russell 3000 index and large-cap Russell 1000 index continued to climb and broke their 52-week high, just over one year after the close of Lehman Brothers.

Below are the daily total returns for the major Russell U.S. indexes, in percentages based on the U.S. dollar, through market close December 28, 2009.   The final year-end total returns for the entire family of Russell indexes will be posted online the evening of December 31, 2009 here.

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 Russell U.S. Indexes YTD 2009 YTD 2008
 Broad-market Russell 3000 Index
 29.8% -37.3%
 Large-cap Russell 1000 Index
 29.9% -37.6%
 Small-cap Russell 2000 Index
 28.8% -33.8%
 Russell Midcap Index
 42.0% -41.5%
 Broad-market Russell 3000 Growth Index  
 38.5% -38.4%
 Broad-market Russell 3000 Value Index
 21.2% -36.3%

Report Identifies Gaps in Retirement Planning Software

A new report suggests the majority of available financial planning tools are still not effectively addressing the wide range of individual issues related to retirement.

The Society of Actuaries (SOA) and Actuarial Foundation analyzed 12 financial planning software programs most commonly used by individuals and financial advisers—either available to individuals over the Internet or designed for use by financial planners for their clients—and found that consideration of the retirement planning period and the handling of longevity risk vary considerably among the programs with some apparent inconsistencies.

The report also claims financial planning software under-represent extreme events, such as the current financial crisis. “The examined retirement programs generally were unable to analyze the risks of variable rate mortgages or large declines in housing prices,” a press release about the report said. “The majority of software surveyed did not consider the possibility of a large stock market and housing market decline occurring at the same time that a person nearing retirement has lost a job.”

The software programs inadequately estimated the level of Social Security benefits users are entitled to, and did not direct consumers to the Social Security Administration Web site to obtain an accurate benefit estimate at no charge. They also usually did not evaluate the possibility of annuitization, converting assets into lifetime income annuities as an option to reduce risk, and there was a lack of consideration of different options for timing of payouts, the report said.

Finally, the groups claimed there is inconsistent treatment of housing as an asset for use in financing retirement. Some programs allow users to specify whether they are willing to sell their home to meet retirement expenses.

Tying in with the report, the SOA hosted a nationally representative telephone survey of 1,365 individuals not retired (18 and older) to gauge their attitudes and behaviors with retirement calculators and related tools and found 39% surveyed neither actively planned for retirement nor sought any type of retirement advice.

More than half (55%) of respondents indicated they are skeptical about retirement computer software and online tools, saying they have little to no trust that the tools provide an adequate assessment for retirement planning. Individuals were asked which types of tools, resources, or services they and/or their spouses used to prepare for retirement, and only 10% surveyed used retirement planning software, while 36% relied on advice from friends and family.

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