Glen Ellyn Wealth Advisors



FORD WEALTH MANAGEMENT LLC

Integrity•Independence•Insight

536 Pennsylvania Avenue

Glen Ellyn, IL 60137

630.545.2800



Erik G. Ford, CRPC®, CFP®

Principal

erik.ford@

Trent E. Warren, CRPC®

Vice President

trent.warren@

December 30, 2013

“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” –Winston Churchill, November 10, 1942.

Dear Fellow Investors:

As the year draws to a close investors are generally feeling pretty good, although nervously so. The S&P 500 US equity index is up nearly 30% year to date. What is behind the nervousness? We attribute it to the lackluster economic growth experienced since the end of the last recession nearly 60 months ago along with its accompanying slow job creation and sluggish housing recovery. In many respects it has been a recovery like no other (the “un-recovery”) and it weighs on us all. Interest rates remain low and the Fed’s announcement on the 18th tells us they will stay that way for some time even as it begins to reduce its bond purchases. It reaffirmed its policy as “accommodative”.

As to the “broad” market performance as exhibited by the S&P 500 Index, we will remind our readers that it is not as broad as it is made out to be. Using data from S&P Dow Jones Indices LLC, dated March 28, 2013, the top 10 stocks in the index account for 18.51 % of the index. That’s 2% of the stocks accounting for almost a fifth of the index. The top two, Apple and Exxon, account for almost 6%. What this means is that a few very large companies can greatly influence the index and perceptions of the market, good or bad. This index has steadily snaked upward in 2013 with the lowest volatility since 1995 as measured by a maximum of peak to trough declines. The asset markets in which we invest are much broader than this, to say nothing of bonds and other diversifying investments. So the question is, “what is the environment for 2014?”

Securities offered through LPL Financial. Member FINRA/SIPC.

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Ford Wealth Management

Investor Letter

December 30, 2013

This brings us to our quote above from the great Winston Churchill. While his quote-ability factor is high and you can find a fitting Churchill quote for almost any situation, this one piqued our attention for the situation we find ourselves in today. We have endured a long slow recovery, but a case can be made that we may be just getting started rather than approaching another downturn. A recent article in the Wall Street Journal (12/13/13) cited three essentials for a better economic recovery, namely rising consumer spending, accelerating job growth and strengthening manufacturing. We will touch on each of these.

First and foremost for the US economy, and really the world economy, is the consumer. The shell-shocked consumer has mostly been MIA so far in this recovery. After watching a breathtaking portion of his or her wealth melt away in the housing debacle and resulting market sell-off, possibly also losing his or her job (or at least they know someone who did), many consumers are still holding their heads down. That same WSJ piece stated that evidence is emerging of higher consumer confidence and consumer spending (e.g. retail sales up Oct. to Nov.). The recovery of financial assets and several months of improving housing values and sales have lifted consumer spirits, but we are a stubborn bunch and slow to return to the flame once burned. With the recent budget deal announced, the remaining uncertainties are the continued implementation of the Affordable Care Act and the next debt ceiling. Neither is insignificant. Oh, and then there is that jobs thing.

There is evidence that jobs are being added to the economy and the unemployment rate is declining. The latter from actual hires rather than folks dropping their job search. It will be interesting to follow how the official unemployment rate does change as jobs become more available and some of those who have stopped looking choose to rejoin the work force. As mentioned in our last letter, the current labor force participation rate is as low as it has been since the 1970’s. The Fed is expected to maintain its unemployment target of 6.0 to 6.5% before raising rates. Two things of note should work toward improving the employment situation. First is a consensus for economic growth improving in 2014 in the US and Europe, several sources predict 3.0-3.5% growth for the US. Second is the continued resurgence of manufacturing in the United States.

We are experiencing this resurgence in manufacturing for reasons that should be long lasting. Technological requirements in manufacturing and the resultant requirement for a skilled workforce and high quality control favor the US. Add to this the rising expenses of formerly much cheaper overseas labor, higher transportation costs and the higher levels of energy production in the US and our advantage should continue for some time. The latest prediction for when the US becomes the largest oil producer is 2015. That is significant.

Securities offered through LPL Financial. Member FINRA/SIPC.

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Ford Wealth Management

Investor Letter

December 30, 2013

So with all these things going for us, why has growth been so sluggish thus far? In a word – uncertainty. Uncertainty is the bane of economic growth as consumers do not spend, businesses do not invest and banks do not lend. The expectation that this uncertainty will be lifted and consumers will spend, businesses will invest and banks will lend has played a part in the market’s performance in 2013. Companies have improved earnings through improved productivity and margins. These margin improvements will go straight to the bottom line with any increase in sales.

So how does this all come together as “the end of the beginning?” What we have experienced over the last five years of our un-recovery has achieved a solid economic base on which to build. Companies and consumers have improved their balance sheets and built cash reserves. Productivity has improved steadily leading to the aforementioned margin improvements and high profit levels. Combine these facts with record low interest rates and equity values have reacted positively. What we don’t see is an economy that is stressed due to rapid growth or facing capacity constraints. Do not mistake our optimism for delusion. There are many obstacles out there and we are likely to hit some a few of them, but we like an environment with excess capacity of capital, workers and energy mixed in a world of increasing technological innovation.

We look forward to what 2014 will bring. Our focus will be on proper portfolio positioning. As described in the book Simple Wealth, Inevitable Wealth by Nick Murray, as an investor you can choose to be an owner (stocks) or a lender (bonds). With the environment we are looking at, we believe the owners will have more rewarding opportunities if chosen carefully. We also want to emphasize portfolio diligence in properly understanding the risks and limitations facing the fixed income market (bonds) as rates begin to rise. Finally we want to focus on having an appropriate level of alternative allocation in portfolios. Risks are always there and every investment opportunity carries risk with it. Understanding what you are comfortable with and how it fits in with your objectives is always the most important first step.

Here is to the “end of the beginning” and wishing everyone a wonderful 2014.

Sincerely,

Erik G. Ford Trent E. Warren

Securities offered through LPL Financial. Member FINRA/SIPC.

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Ford Wealth Management

Investor Letter

December 30, 2013

The Standard and Poor’s 500 Index is a capitalizations weighted index of 500 stocks designed to measure performance of the domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Bonds are subject to market risk and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Stock investing involves risk including loss of principal.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Alternative Investments may not be suitable for all investors and should be considered as an investment for the risk portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Securities offered through LPL Financial. Member FINRA/SIPC.

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