November Newsletter

Where do we go from here?

Rebuilding and moving forward:

After a brutal October that witnessed unprecedented levels of fear in the markets we are now left to wonder, what does the average investor do now?

While impossible to have a universal answer for everyone there are a couple of items that we can focus on going forward:

401k's:

If you are still in the workforce and contemplating stopping your 401k contributions, don't. It may be difficult to watch your account balances drop but stopping contributions is the worst thing you can do. If you are concerned that the markets will drop further then make allocation changes to your existing contributions along with directing your new contributions toward asset classes that are a bit less volatile.

The simple reason is that the 401k still offers one of your best tax breaks, it generally offers an employer match (free money), and it is probably the single largest asset that will support you in retirement.

Investment Strategy / Allocation:

The markets are down approximately 40% from their high one year ago and October was the worst month in 21 years. Do you change your strategy now that we have suffered through all of this?

There is no right or wrong answer on this one. Obviously, the market has priced in a fairly severe recession and will begin to rebound long before the economy starts to recover. I will share with you two links from some pretty savvy investment gurus:

Warren Buffett: Buy American, I am

John Hussman: Where are we Now?

One thing to note, while each of these guys are saying that valuations look attractive for the first time in many years, neither is saying that this market is going to go straight up. In fact we may bounce through the end of the year and retest the October lows in the first quarter of next year when the market gets wind of dismal holiday retail sales.

The one take away that both of these investors is advocating is a multi-year timeframe. (along with the ability to ignore that day to day girations and flip flopping bull/bear commentary on the news channels.)

What do you do?

It will take some time to repair the damage that has been inflicted this year in the markets. If you remember the 2000 / 2001 decline, the markets bounced around until 2003 before launching into the next bull market. We may follow that path or simply start a recovery in mid 2009, no one knows for sure.

The best course of action for the average investor is to have enough cash on the sidelines to cushion your portfolio against volatility and to cover cash needs for the upcoming year. (if you don't have any cash in your investment account consider building some with any bounce we get) The remainder of your long term investments can be positioned for the eventual recovery whether it happens in 2009 or 2010.

Questions?

This is a challenging time for all of us, but I am here to help. If you have a question regarding your financial strategy, feel free to email me.