Money Management & Retirement Planning Advice by Barry Unterbrink, Chartered Retirement Planning Counselor

Tuesday, July 01, 2008

The First Half of '08

Little to Cheer About so far in 2008 - but stocks are on-SALE!

The second quarter closed out on Monday, ending the first half of 2008. I hope your life perspective was productive and energetic. The financial perspective hasn't been very pleasant,
however. In all likelihood, we are in the midst of a recession in the U.S. economy, evidenced on main street and Wall Street. The popular stock market averages, as of today, have entered a 20% correction, and a bear market is upon us. A good indicator of a diversified portfolio for many Americans' savings and investments (IRA's, 401-k's, brokerage accounts, etc.) the popular market averages have fallen hard year-to-date, even if the April to June period saw a slowdown in the damages. The Dow Industrials and S&P 500 fell 7% and 3% in the three months, and 14% and 12% respectively for the first half of 2008. Unless you were positioned in Gold, Silver, or Energy and Commodity investments, your portfolios fell in value. Bonds gained a respectible 1-3%. Financial stocks of all stripes were off 25% plus.

The financial newsmakers most always create a big buzz on such events. "We are in a bear market, a recession - the worst in eons". As alarmists, they are sure to draw in viewers to their almost 24/7 blathering. The mute button is a great feature. I'm not saying to be Mr. Sunshine and dismiss the real problems facing us: lower interest rates for savers; rising inflation (at the food counter and gas pump mainly); along with falling home prices. But let's be somewhat realistic. The U.S. economy has entered 10 recessions since WW2, two in the 1970's, two in the '80's and one each in 1990 and 2001. The market's perform very well coming out of recessions-before you feel better, stocks are ahead nicely ahead.

Don't forget about where we've been, after the 2000-2002 recession, stock prices doubled the next 5 years. Today's markets may trend lower, but if you're up 100% then down 20%, your're still ahead nicely, eh? Remember, no one rings a magic bell at the low to signal when to buy. Generally, the words always and never will get you into trouble more than not, in life and investing. Staying the course within the limits of sleeping well at night is prudent now.

So here are my lesson-points to lessen your stress, and keep your cool with your money when you open your June statements.

1> Don't base your performance on the highest values of your monthly statement - you will be disappointed. You can rarely predict the highest price to sell; the markets are too tricky to allow that. Instead, review things every 3-4 months and set parameters on how you are going to re-allocate your monies. Say, 60% stock mutual funds, 25% bonds, and maybe 15% cash or money market funds. If stocks do well, and are now 70% of your mix, sell some and get back in balance. If stock values decline to 50% of your total, buy 10% more stock. An old, good conservative rule to follow for your allocation; take 100 minus your age, and devote that to stock-based investments. Time will make you wealthy, not your timing or gut reactions. Hope and prayer are admirable in your faith, but aren't good as investment strategies.

2> Seperate your money into various pots, based on risk and objective. Sometimes having just one account makes investing more confusing, and you may make moves that get you into trouble without realizing it. By using 3 accounts, you could allocate some money to a riskier aggressive stock or mutual fund account, and then hold bonds or fixed income in another safer account, and finally have a "safe money" flexible annuity account that you can put away savings for retirement in 10,15 or 20 years with no risk of loss. Move money from a riskier pot to more conservative pots as your "pots" grow in value.

3> Learn how to read a stock or mutual fund chart. "If you can't measure it, you can't manage it", says a saavy investor this week on the television. How true. Looking in the Sunday newspaper for a quotation is not enough. You need to understand supply, demand and a few other indicators that the big boys use with stock and mutual fund charts. I use for my fund charts and for my stock charts.

Concerning retirement, as I've blogged in the past, you should fund a retirement account with mostly "safe money" that you won't lose to Mr. Market if you are not a good money manager, or just have a streak of bad luck to blame. Which would you prefer to earn with your money over a 5- year period: +7%, +6%, +0%, +4%, +9% ... OR +11%, +6%, -7%, -3%, +22%? Guess what, they both end up at the same point, about a 29% gain. In the latter string, volatility and a two year loss may force you out of the market in the fourth year, missing year 5's gain of 22%.

Retirement Planning Hotline

I've started a 24/7 telephone call-in line to further inform my clients and friends between my blogs and e-mails. You can call it anytime, and listen in on a recorded topic each call. It will be mainly focused on retirement planning, income planning, and "safe money" strategies; I won't discuss individual stocks or give specific investment advice. You can call me to meet you for a no-fee consultation. If you call and leave your name, I'll send you a free 101 page book on the topic*. The first two callers get the goods.

The call in number is: (641) 715-3800, enter 22509# when prompted. Updates will be sent to you by e-mail when I have a new recording. Tell me if it was helpful to you. Have a great and safe Independence Day. *prior winners ineligible.

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