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June 21, 2006     Mukilteo Beacon
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June 21, 2006

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10 - Mukilteo Beacon - June 2006 G ORY W. :++:+~++i~ancial Consultant, Smith ii+~ney ~+:~ With oil prices up sharp- ly during the past few years, many investors are worried about the effects of higher fuel prices on the value of their investments. Some have even asked if now is a good time to avoid stocks due to the surge in oil prices. High prices at the pump-- and the headlines that often accompany them--shouldn't prompt you to make big changes to your long-term in- vestment strategy. It's true that rising oil prices can contribute to a slowdown in the economy that sends stock prices lower. But those negative results may not be inevitable. Exam- ining the 10 largest average monthly oil price increases from 1970 through July 2005, the Consulting Group found that the relationship between oil prices and stock prices is somewhat unpredictable from year to year. For example, in January 1974---the first year of the Arab off embargo--off prices soared nearly 135 percent. However, the S&P 500 fell a mere i percent. Then, in 1986, oil and stock prices moved in lockstep, rising 30.4 percent and 7.1 percent, respectively. In fact, stocks gained ground during 60 percent of the time oil prices rose. (Source: Standard & Poor's, Federal Reserve Bank of St. Louis). The upshot: If you cash out of stocks during peri- ods when oil prices rise, you could miss out on opportuni- ties to help grow your wealth faster and achieve your most important financial goals. The real price of gas It's very likely that high gas prices during the past year or two have left you with less money to spend else- where--and that goes double for you SUV owners. What's more, because consumer spending accounts for two- thirds of U.S. Gross Domes- tic Product (GDP) growth, a weak consumer can go a long way toward dampening cor- porate profits and pulling the economy toward recession. But gas prices in the recent environment have not been prohibitively high. True, it might seem that way when you fill up your tank. Howev- er, gas prices are reported in nominal dollars---which can make current prices seem steeper and scarier than they really are. Example: The average price of gas in nominal dol- lars in 2004 was $1.92. But when factoring inflation into the equation, the price was $1.78. That's 51 cents less than the $2.29 consumers paid for gas in real, inflation-adjusted terms back in 1981. Likewise, the real price of a barrel of oil back in July 2005 was $11.75, even though the nominal price was more than $60. (Source: Bureau of Labor Statistics, Fe:leral Re- serve Bank of St Louis) In fact, when taking infla- tion into account, oil prices would have to hit approxi- mately $90 per barrel--well above the current price---to match their previous highs back in 1980. Not the '70s all over again If you lived through the 1970s, you no doubt remem- ber sky-high oil prices, gas rationing and the resulting recession. The good news: The current environment is significantly different than it was back then. For one thing, the U.S. has actually reduced its oil consumption thanks to new technologies and conser- vation efforts. Oil consump- tion as a percentage of GDP recently stood at 4.1 percent, down from 8.5 percent in the early 1980s, according to the Department of Energy Another key difference: Inflation today is extremely low by historical standards and nowhere near the double- digit levels that we experi- enced during the 1970s. That's helped the economy weather the recent surge in energy prices with relatively little negative impact--which, in turn, has benefited the finan- cial markets. In other words, we're not reliving the '70s. Given the current environ- ment for oil and gas prices, you may want to consider these ideas: Stay fully invested. While there most likely is a rela- tionship between oil prices and stock prices, it's not al- ways clear how they'll inter- act. Fleeing stocks because oil prices are high and/or ris- ing is essentially a dangerous game of market timing--and it may cost you in the long run. Stay diversified. Because it's not always certain which types of investments will perform best during periods when oil prices rise, it's pru- dent to build and maintain a well-diversified portfolio that offers exposure to the full range of asset classes---in- cluding large- and small-com- pany stocks, fixed-income securities and cash. Such a portfolio may help position you to ride out oil price fluc- tuations and the financial market's ups and downs. Stay focused. Don't let media headlines or any short- term event--such as a spike in oil prices during a particular week or month--cause you to abandon your long-term in- vestment strategy. Be opportunistic. Con- tinuing focusing on sectors that provide opportunities that are in line with your in- vestment objective. That said, you might want to limit the percentage of your total as- sets that you allocate to any one segment of the market in order to remain diversified and potentially reduce risk. Mukilteo resident Gregory Hauth is a Financial Advisor with Smith Barney located in Seattle and may be reached at 206-344-2448 or Gregory. w.hauth@smithbarney.com ++i+++++ ++~URSING, FROM PAGE 9 shortage, but there are a limited num- ber of slots for students pursuing nursing degrees," Black said. "The PEMC partnership, plus in- creased retention, is PUshing up our average graduating class from 11-15 students per quarter to more than 30 per quarter." EvCC nursing graduates are highly skilled, she said. In 2005, EvCC nursing grads had the highest passing rate in Washing- ton State on the state registered nurse licensing exam. The PEMC agreement also brings the college part-time instructors from the hospital. At least 10 Providence nurses have served as part-time clinical faculty for the college, joining EvCC instruc- tors in preparing future nurses. Many nurses on staff at Providence are Everett Community College grad- uates. In 2004 alone, the hospital hired ap- proximately 60 EvCC alumni. In addition to the EvCC commence- ment June 9, the nursing students cel- ebrated the end of their six-quarter program with a traditional candle- light ceremony June 13. Providence Everett CEO Gail Larson spoke to the graduates at the ceremony. "This graduation is a milestone event - it establishes the benefit of ECC and Providence working togeth- er to recruit and graduate high qual- ity nurses from our own community," Larson said. "Within the next five years, Providence Everett is build- ing a new medical center to meet the community's needs. "This partnership is important to ensure that high-caliber, well-trained nurses are here to care for patients who come to these new facilities. Con- gratulations to ECC for this marker in its history." For more information about EvCC's nursing program, call Patricia Black at 425-388-9550. Kay Wagner LUP 828-2nd St. Ste. H 1 Idock lint Ande's is Maldgee 425-353-4545 From "Old Town" to Harbour Pointe The Beacon is your communitypaper. lurrutia @windermere.com www.realestatelou.com