Avalon Planning Residential Lots

An Orlando-based developer has purchased a 68-acre tract near the Dell headquarters with plans to develop up to 140 residential lots. Avalon Park Group bought the land near the I-35 and E. Yager Lane intersection from locally based Solo Star Realty Inc.

The site currently has multiple zonings, but Avalon is working to have it rezoned exclusively for single-family residential development.

December 2008 Austin Real Estate (Short) Stats

Units for Sale: (compared to December 2007)
New listings were down 12.84%.
Pendings were up 34.86%.
Solds decreased by 16.01%.

As for Average Prices:
The "New Listings" average list price is up 2.36% to 300,316. In December 2007 the average list price was $293,392.
Sold average sales prices decreased 5.66% to $238,867. For December 2007 it was $253,205

Don't Underestimate Inflation

Inflation has been tame for so long that it's easy to ignore when planning for retirement. However, even inflation of 2% or 3% per year, over a period of many years, can seriously erode the purchasing power of your funds. At 2.5% inflation, $1 today will be worth 78 cents in 10 years, 61 cents in 20 years, and 48 cents in 30 years. That can have a major impact on those entering retirement for several reasons:

• New retirees are less likely to have defined-benefit pensions. Thus, they must rely more on Social Security benefits and personal savings, including defined-contribution plans such as 401(k) plans.
• Cost of living adjustments for Social Security benefits are less generous. While Social Security benefits are still adjusted for inflation based on the consumer price index (CPI), the methodology for calculating the CPI changed dramatically in 1999, reducing increases in the CPI.
• Retirees are living longer. As life expectancies increase, retirees are spending more years in retirement, so their retirement savings are subject to the impact of inflation over a longer time period.
• Health-care costs are becoming more of a burden to retirees. More and more companies are reducing benefits or eliminating health care insurance for retirees, and health-care costs tend to increase faster than overall inflation. For instance, in 2006, the overall CPI increased 3.2%, while medical care costs increased 4.0% and hospital and related services increased 6.4% (Source: Bureau of Labor Statistics, 2007).

To combat the effects of inflation on your retirement income, consider these tips:

• Use a conservative inflation rate for planning purposes. Since your retirement is likely to span decades, consider inflation over long time periods. For instance, while inflation has averaged 2.54% over the past 10 years, it has averaged 4.31% over the past 30 years (Source: Bureau of Labor Statistics, 2007).
• Consider investment alternatives likely to stay ahead of inflation. Thus, a significant portion of your portfolio will probably be invested in stocks, which have typically earned returns in excess of inflation.
• Invest in tax-advantaged investment vehicles. Look into 401(k) plans, individual retirement accounts, and other retirement vehicles. While each has different rules for taxing contributions and earnings, all provide some tax-free or tax-deferred benefits. Since you aren't paying income taxes on earnings throughout the years, that typically means you'll have a larger balance at retirement than if you were paying taxes throughout the years. Thus, you'll start out with a larger retirement base to help combat inflation's effects.
• Keep fixed expenses as low as possible. Try to enter retirement with as few debts as possible. If you aren't using a significant portion of your income to pay a mortgage, car payment, or credit card debts, you'll have more flexibility to deal with higher prices.
• Decide how you will deal with health-care costs. While Medicare will help once you turn age 65, it still does not cover many health-care costs. Look into Medigap policies and prescription coverage to help with those noncovered expenditures, especially if your employer does not provide health insurance after retirement.
• Minimize withdrawals from your retirement assets, especially during the early years of retirement. To counter inflation, you need to withdraw larger and larger sums just to maintain the same purchasing power. To make sure you don't run out of funds late in life, keep withdrawals during the early years to a minimum.
• Be prepared for change. After retirement, keep a close eye on your investments. If inflation increases and you are concerned that increasing withdrawals may deplete your investments, you may want to look for ways to reduce your living expenses or go back to work at least part-time.

Should You Consider International Investing?

During the 1990s, the U.S. stock market significantly outperformed international stock markets. International investments drew little attention during that time. But now the situation has reversed, with international investments outperforming U.S. stock investments over the past few years. Is now the time to take another look at international investments? Before deciding, consider these points:

Do international investments really add diversification benefits to a portfolio? The primary objective of diversification is to reduce the volatility in your portfolio. For instance, when the U.S. stock market is declining, investments in other parts of the world may be increasing. Over the short term, especially during periods of crisis, stock markets throughout the world tend to move in the same direction. Many believe that the world economy has become more entwined, making world markets more correlated with each other, possibly reducing the benefits of global diversification. Yet, how closely a country's stock market is correlated to the U.S. stock market will depend on how heavily that country depends on exports to the U.S.

One way to determine the diversification benefits of adding an asset class to your portfolio is to review the correlation between the two assets. Correlation is a statistical measure of the extent to which one asset class moves in relation to another asset class, ranging from +1 to -1. A correlation of +1 means the two assets are highly correlated and move very closely together in the same direction. Combining assets with a high positive correlation will not provide much risk reduction. A correlation of -1 indicates the assets move in opposite directions, a rare event in the investment world. A correlation close to 0 means there is no relationship in the price movements of the two assets. Combining assets that aren't highly correlated can help reduce a portfolio's volatility.

A recent study comparing the correlation of returns between the U.S. stock market and major foreign stock markets for the period from 1988 to 2007 found the following correlations with the U.S. stock market:

Japan	. 35
Pacific region	.42
Australia	.50
Hong Kong	.51
Switzerland	.54
Singapore	.55
Germany	.60
France	.62
United Kingdom	.65
Netherlands	.67
Europe	.71
Canada	.73

(Sources: T. Rowe Price Associates, Inc., Standard & Poor's, 2008)

While some of the correlations are relatively high, others are fairly low. Since these correlations relate only to major foreign markets, there is potentially less correlation with developing countries' stock markets. In general, the correlations with foreign markets are still low enough to provide diversification benefits.

Do returns in foreign markets offer greater potential than U.S. stock market returns? No one can predict the future performance of any stock market. However, reviewing past performance can help develop realistic expectations. International investments outperformed the U.S. stock market for five-year rolling periods from 1974 to 1982 and from 1985 to 1990. From 1990 to 2003, international markets lagged the U.S. stock market. Since 2004, international markets have outperformed the U.S. stock market (Sources: The Case for Global Investing, 2005; Diversifying Overseas, 2007).

These returns, however, compare overall international returns to U.S. returns. From 1987 through 2006, the U.S. stock market never had the highest returns out of 10 major foreign markets. In 2002, the U.S. stock market ranked 9th out of 10 markets, 10th in 2003 and 2004, 8th in 2005, and 10th in 2006 (Source: Diversifying Overseas, 2007).

Even though international markets have had higher returns than the U.S. for the past few years, international investments lagged behind U.S. investments for such a long time that there may be opportunities to find investments in other parts of the world that are more attractively priced than those in the U.S.

Does international investing offer other advantages? The U.S. stock market now represents only 45% of total market capitalization in the world, down from 66% in 1970 (Source: Diversifying Overseas, 2007). Limiting yourself to U.S. investments means eliminating over half of the world's investments from consideration. In a number of industries, the world's leading companies are not U.S.-based. Of the top 10 industry leaders in terms of market capitalization, the following were located outside the U.S.:

• 9 in metals and mining companies
• 8 in electronic equipment and instruments companies
• 7 in automobile companies
• 7 in household durables companies
• 7 in telecommunications companies

(Source: Diversifying Overseas, 2007)

Also, since different countries are at different developmental stages or at different stages in the economic cycle, you may find opportunities to invest in trends in other parts of the world that you missed in the U.S.

What percentage of your portfolio should be invested in international investments? It is usually recommended that you allocate at least 10% of your portfolio to international investments, since less than that will typically have little effect on your portfolio's total return. It is common to see recommendations of a 20% to 30% allocation to international investments. Inflows to international mutual funds have increased 89.6% from 2004 to 2007, with investments in international mutual funds comprising 20% of all equity mutual funds in 2008 compared to 18% in 2006 (Source: Bank Investment Consultant, July 2008).

However, what percentage you allocate will depend on personal factors, such as your risk tolerance, time horizon for investing, and comfort level with foreign investments.

International investing may not be suitable for everyone. In addition to the risks associated with domestic investing, foreign investing has unique risks, such as currency fluctuations, political and social changes, and greater share price volatility. Diversification does not ensure against loss.