myfinancialmarket.com

Watching the roller coaster ride of the Stock Market over the last several weeks, it has been hard to provide suggestions on where to proceed with investment dollars (although a day trader could have made out quite well given the volatility). Just when the Market would move up a bit, it would then tank, and vice versa. Today is different. I thought I would post some thoughts for investors.

Today the Stock Market reacted to the failure of the House of Representatives to pass a bill that many thought would help bail us out of the sub-prime mortgage mess and its subsequent fallout of many financial institutions. Our own personal bank, Wachovia, today merged with CityGroup (stock symbol “C”). Wachovia’s stock had plummeted 82% before this takeover — certainly a good lesson on not to put all your investment eggs into that proverbial basket of one company’s stock.

I am writing today, once again reminded of the 1987 crash of the stock market, yet it is hard to believe the Dow Jones Industrial average plummeted 777 points, a new record drop.  For several months some market analysts, looking at the history of the Stock Market,  have been writing about how a Bear Market will climax with a very sharp sell off — for sure we had this event today. The question though is whether this is the bottom or not?  Following the Crash in October of 1987 — yes, this would have been a great time to get back into the Market. Is today that day?  As Yogi Berra once stated, “It ain’t over til it’s over”

I have been speaking to young investors today and I reminded them that their best asset is they are young enough to recover over the next 20 plus years. Their best asset is their future career years. For most below the age of 40, this will work in their favor to recapture those 401K and IRA dollars they have seen drop in value 25% or more. By investing on a continuing basis in your 401K, this comes out of every paycheck. which in a Bear Market actually buys more shares of stocks or Mutual Funds over the long haul and you will likely recover. What you will want to do though is to examine just how diversified your portfolio is and for sure just how much risk you wish to expose yourself in order to be able to sleep at night without a lot of financial worry. Like I did almost 20 years ago, you may wish to become what is called a technical trader which is a person who uses Technical Analysis to buy and sell stocks or Funds of stocks, usually on a short term basis.  You may also chose to be a Couch Potato and simply invest in a basket of Exchange Traded Funds (ETF’s) or Mutual Funds. I did both and although being a technical trader takes more time, I still have  positive gains on a rotating stock trading portfolio of a small group of small capitalization stocks. Unlike the past 10 or more years of great results, trading of mutual funds and ETF’s have produced negative results in 2008. Or maybe you will just want to sit down with a Financial Advisor to set your financial goals and have that person suggest where to place your investments. Keep in mind, that finding a truly good one may be the hard part.

A real concern I have is for those who are closest or actually in their retirement years, partially living on yearly withdrawals from their retirement accounts, along with Social Security and with perhaps a pension. I believe I have mentioned before that financial analysts usually recommend to withdraw no more than 4-5% or your portfolio on a yearly basis (adjusted yearly for inflation). This year, for those retiree’s who are heavily invested in the Market, this means up to 5 years of retirement withdrawals have disappeared. By following this rule, the next several years will even provide them with less dollars based on the 4-5% withdrawal rule. This group, who may include those who are hoping to finance college educations for children or grandchildren, have less time to make up the losses incurred so far this year. Quite often the retirement folks have their dollars in CD’s or money market mutual funds. I owned one CD which was from a bank that went bankrupt and taken over by another, yet I was lucky that yet another bank took them over. In any case, a several week wait was necessary in order the recover this money. It would be wise for this group to also analyze their market exposure and if they have not already done so, examine their relative holdings between CD’s, bonds, stocks, amd mutual funds. Remember there is risk even in CD’s if you hold more than what the FDIC will insure.

I hope to write more soon,

Don

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