Jason Stipp: I am Jason Stipp for Morningstar.
As 2010 heads toward the record books, we wanted to take a moment to reflect on the gifts that investors have received in 2010. Here with me to help unwrap those is Morningstar's Christine Benz, director of personal finance.
Thanks for joining me, Christine.
Christine Benz: Jason, great to be here.
Stipp: So the first gift that I think we should open up today has to do with performance and what we've seen across asset classes in 2010. Why has that been a gift for investors?
Benz: Well, performance across the board really has been quite positive. So I would say with the exception of a single asset class, municipal bonds, everyone has earned a very nice return. Whether you've been a taxable bond investor or an international stock fund investor or a domestic stock fund investor, you have gotten very nice performance.
And that's not something you always see, especially after the kind of great year that we had for stocks, in particular, in 2009. A lot of times you'd expect to see stocks take a little bit of a breather. That really hasn't happened. It has been off to the races, especially in the second half of 2010.
And the other thing that has not happened that you sometime see in an improving economic recovery, or an economic environment like we've had, is you see interest rates begin to put pressure on bond prices. That has happened over the past month, month and a half or so. But for the most part, bonds have been fairly placid for the better part of 2010. So you've had a nice positive return from bonds and bond funds.
Stipp: And I think on a related note there, it's kind of a gift to investors' psychology when we don't see a lot of volatility in returns or something doing really well at the expense of something else, which can sometimes when that happens lead to some bad decision making.
Benz: That's right. And I do think the flash crash that we saw in the first half of the year did prompt a little bit of panic among some investors. But for the most part, it has been pretty placid. Not dramatically robust moves in most stocks and stock funds. So that hasn't, I don't think, promoted a lot of greed. And you haven't seen a lot of those deep dramatic sell-offs, either. So I think an environment for relatively good decision making.
Stipp: Christine, another gift that we got late in the year has to do with the uncertainty over the tax environment. How has that been a gift for investors?
Benz: Well, if you'd have asked me in the first half of 2010 whether we'd see a renewal of those Bush tax cuts, I would have said probably not, given the political climate, worries about the deficit and so forth.
But from an investing standpoint, at least, regardless of what you think about the long-term impact of those tax cuts, from an investor standpoint it's a big plus, not just the renewal of income tax rates, but also the relatively low dividend and capital gains tax rates that we've all been able to enjoy for the past several years. That's a huge plus and a huge gift to investors.
Stipp: We've really been talking about that a lot this year--all that uncertainty and what to do about it. We finally have some clarity there. So, certainly a good gift for investors.
Another thing, Christine, that we've seen this year: Typically when the economy starts to heat up, one negative rears its head and that's inflation, but inflation trends this year have actually been a gift for investors.
Benz: Very much so. So in an environment, where a lot of workers have not seen raises, the fact that inflation is fairly benign has let investors keep a lot of their take-home pay and use that to spend on stuff. So that's a big positive, and especially for retirees.
So some retirees do get cost of living adjustments in their pension checks. Everyone gets cost of living adjustments in their Social Security benefits. But to the extent that retirees are withdrawing from their portfolios, those do not get that inflation adjustment. So the fact that prices on things have remained nice and low has allowed retirees to keep a lot of the purchasing power on the money that they are withdrawing from their portfolios.
Stipp: Lastly, Christine, around this time of year a lot of folks are out comparison shopping and checking price tags on things. But if you are a fund investor, you also should be checking price tags, and there is some good news on that front from 2010 as well.
Benz: Jason, this is a continuation of a trend we've seen over the past few years. These price wars that we've seen among providers of exchange-traded funds and also index funds have continued into 2010. We have seen a lot of firms drop commissions on ETF trades. And Vanguard did a very nice thing for its investors by lowering the barrier to entry into their Admiral share class of its funds. So these are index funds and actively managed funds that Vanguard offers, and they do have lower costs than Vanguard's other share classes. So it's a nice gift that you don't need to be a high roller to qualify for those Admiral share classes.
Stipp: Well, all in, Christine, it seems like investors have good amount of things to be thankful for this season.
Benz: Good amount of cheer, yes.
Stipp: Thanks so much for joining me.
Benz: Thank you, Jason.
Stipp: For Morningstar, I am Jason Stipp. Thanks for watching.