2008 - A Recap
There can be many reasons we should be grateful and happy with 2008. Our family and our relationships, good health, a roof over our heads and food in the 'fridge. But, we are working more. The median number of leisure hours available each week dropped to 16 last year, down from 20 in 2007 and 26 in 1973 when Harris Interactive starting tracking this stat. Working hours increased from 41 in 1973, to 45 in 2007, to 46 last year. With unemployment on the rise, 7.2% nationally, maybe working more is a good thing – it means you have a job!
It's quite certain now that the financial markets will end 2008 at sizable losses (I started this post between Christmas and New Years while in Virginia). It ranks pretty poorly in the historical perspective; the worst decline in stocks since 1931 using the Dow Jones Industrial stocks average. Kinda interesting that the stock market, in the Great Depression, climbed out of the malaise in the summer of 1932. It lost 25% in '30, 43% in '31, 8% in 1932, and then blossomed 54% in 1933, flat in ’34, then up 48% in 1935. I realize that it's painful, but be patient.
I am usually not upset over bear markets; it's part of the process of cleansing and renewal that we must expect in a capitalist system. What was difficult this go-around was that the credit and housing crisis forced the bear market into the once sacrosanct areas of corporate and municipal bonds, money market funds and similar fixed income investments. Investment principal reduced values, causing runs on stocks and mutual funds, which forced selling to meet redemptions from shareholders wanting ultimate safety in government bonds and treasury bonds. There has been a disconnect between a businesses prospects and earnings power and it's share price - a most difficult scene to manage money.
In the ’32 to ’35 period, corporate and Gov’t. bonds did quite well, averaging 11% and 8% per year respectively. One big difference between the periods; inflation. Consumer prices fell about 1% per year then, while last year’s inflation rose about 6%. Prediction: the huge government bailouts and money printing will bring inflation back; remember the Gerald Ford - Jimmy Carter years? Inflation averaged 8% a year between 1973 and 1977 – that's a big headwind to overcome to keep your money ahead of inflation. Perhaps oil and commodity prices will stay low, capping inflation a bit more. Gold & silver offered little solace last year: Gold +4%, silver -25%. Together they rose 22% on average in '07.
Washington and the "asleep at the switch" regulators received their nasty wakeup call in the mortgage and lending markets, where everyone was getting fat at the feeding trough the first five years of this decade. Just like all "bubbles" the 2005 to 'to be determined' real estate meltdown caught speculators and simpletons alike in the cross hairs of amortization assassination. My thoughts are that Washington needs to assemble an army of psychiatrists to make the decisions within most areas of finance, because it's investor behavior that rules most outcomes in this latest mess. The agreements, contracts, repayment schedules, prices, etc. meant very little. They were the 'drivers', but human irrational decisions are wired into our phyche; hey now I sound like a psychiatrist !
I hope that you've spent a few minutes each month reading my financial blogs and have benefitted in some way by my outlook and specific strategies. (The archives are on the right side of this page). Among the blog posts this year ...January - Bear Market history lesson; hedging techniques. February - I outlined retirement account transfers and rollovers, advantages and disadvantages. March - Retirement account deadlines (I.R.A., etc.) and potential growth of your balances. May - Investment Do-over (How fixed index annuities can prevent market losses and grow your savings). June - Half-time report: using diversification to reduce risk of loss (Telephone Hotline Started). August - Market Update and the benefits of dollar cost averaging. September - The 7% Strategy and the results from 78 years of market history. October - Assessing the bear market and invitation to my retirement planning workshop. November - Holistic Retirement Planning: post review of retirement workshop. To re-read any topic of interest, just click on the dates on the right side of the page, and you'll be taken to the specific post.
Look for more helpful topics in 2009 involving income planning, using options, etc. Sorry for some doom and gloom on this post; but it’s my job to worry about money. I signed up for it!
Give me a call for a free portfolio review, and to assess investment options you may not have considered. Please try to have a better 2009, and count your blessings we have around us that we often take for granted.
Chartered Retirement Planning Counselor