23 September 2008

Don't panic. Invest regularly.

As you might be aware the financial markets are a bit of a concern right now.
Reading in the NZ Herald today, sages are writing about how this has all been in the works for 30 years and experts shoulda seen it coming . . .. well, I bet we could look back a few weeks and not find the same sages warning anyone! Hindsight is amazing!

Here's a blurb I received from my advisor.
The Dow recently suffered its biggest percentage drop in more than six years, and is now down about 25% from its record close just last year, Oct. 9, 2007 Markets do go up and do go down. You know this, but when the market goes down, especially when it drops appreciably, it is unsettling. The volatility in the market is a common and normal activity of the stock market and should be expected.

Declines are common, take the following: The stock market since 1900.

  • A routine decline of 5% or more happens about three times a year and lasts about 47 days.
  • A moderate decline of 10% or more happens about once a year and lasts about 113 days.
  • A severe decline of 15% or more happens about once every two years and lasts about 215 days.
  • A bear market of 20% or more happens about once every 3 ½ years and lasts about 329 days.
(Capital Research and Management Company is source, flyer Sept. 2008)

Realistic Expectations on Stock Returns: As of 12-31-2007.
Over the past 60 years, stocks averaged 11.8% per year.
Over the past 40 years, stocks averaged 10.6% per year.
Over the past 20 years, stocks averaged 11.8% per year.
Over the past 10 years, stocks averaged 6.4% per year.

(From Global Financial Data, Stocks are Wilshire 5000 Index)

Good news you do not hear much about in the media. (They want you to tune in tomorrow or buy another paper).
Interest rates are relatively low.
Inflation is moderate.
The US dollar has declined against other countries currencies, allowing other
countries to buy goods and services produced in America for less.
US Unemployment is not low but not high either.
We have been at this down market for almost a year now (See above).
We believe there are many companies that are good bargains.

What to do? While we wish we could predict the future of the markets, we cannot. We are advising you the best we can, but remember that there are no guarantees when it comes to investments in stocks, bonds or other financial instruments.

1) Don’t panic-Stay invested. You should have your monies diversified enough so that your short term needs are in a safe-liquid account and your longer term investments are in a broad basket of stocks, bonds and CDs.

2) Buy low-Sell high. We are likely in the “Buy low” part of this saying. This could be a good time to look at purchasing-not selling. Trying to time the market is difficult as it requires two near-perfect actions-getting out at the right time and getting back in at the right time. If you wait to get back in when you feel “comfortable” you may have missed most of the upswing in the market.

3) Re-evaluate your risk assessment. What percentage of your portfolio should you have in stocks? We can help on this one. We can then make any necessary change upon market recovery.

4) Invest regularly. Investing on an ongoing basis will take the guesswork out of timing the market. You buy in both up and down markets.

5) Seek professional guidance and review annually. We think it prudent to take a thorough look at your assets and investments once each year, make adjustments based on your risk-reward profile and go forward.

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