2008: Thoughts on investing and planning

Happy New Year!

As 2008 has started out rough for the financial markets I felt that it may be prudent to not only discuss thoughts on where the markets might be headed this year but to also challenge you to think about your goals, regardless of the outcome.

The Financial Markets in 2008:

Unfortunately, the reality is no one knows where we are headed this year. For the past 9 months the Fed Reserve along with the Treasury have been wrong along with many analysts. Since last spring when news of the subprime/housing issues first came out we were told everything was contained. Each month thereafter we were told the same thing only to watch the financial stocks take the worst beating since the Savings and Loan debacle. With this selloff came the realization that things were not contained and the bubble in realestate was possibly something more. In hindsight we look back at the amount of credit and financing that has propelled our economy and it seems obvious that sooner or later there was bound to be a hiccup.

In the face of a slowing economy and simultaneously being an election year, it is my feeling that we will see the government do everything possible to help the markets. This includes interest rate cuts by the Federal Reserve, increased repos by the Fed to banks to spur lending along with government tax cuts or rebates to spur consumer spending.

Will it work?

Good question. As someone that studies the market 40 hours a week, I would say that with 100% certainty you will see lot's of action in the markets this year. The indexes will selloff hard on bad news only to rebound sharply with any hint of government intervention. Where we end up at the end of the year is anyone's guess.

What should you do?:

As I have mentioned in previous newsletters having a plan or strategy is imperative. No matter what happens this year or next or 10 years from now you have to have an investment strategy. There will be both bull and bear markets throughout your lifetime. Understanding your risk tolerance, retirement goal and/or retirement income needs are crucial to not letting the up and down moves dictate your actions.

Make a goal in 2008 to really understand your cashflow needs and what your investments need to be doing for you.

Attached are some historical charts of the S&P, DOW and Nasdaq markets. We have come a long way and it would not be unusual to have a period of consolidation. If that were to happen would it change your long term strategy?