Smart Money with Keith Springer Saturdays at 1PM and Sundays at 6AM on NewsRadio KFBK 93.1 FM and 1530 AM

Portfolio Repair and Recovery

Posted At : February 17, 2009 10:15 AM

We are in a long-term secular Bear Market, and an investment strategy that ignores this fact will continue to be challenged. One of the great sucker plays since the late ‘90s has been the “buy and hold” for the long term strategy. Just look at the returns: from 1/31/99 to 1/31/09, if you invested in an S&P 500 index and held for “the long term,” your total return during this time would have been -23.5%. After adjustments for inflation, your return drops to -40.4% or -5.15 annually, and that’s with reinvesting dividends making the stock market about where it was in 1996. If you did not reinvest dividends, you are about where the index was in 1973! Clearly investors must be nimble and willing to desert old fashioned buy and hold asset allocation models and employ tactical strategies to be successful.

People often make a lot of mistakes when they invest, apart from just not opening their statements. They do so as a result of their biases of judgment or mistake their perceptions as reality. There are 3 basic mistakes:

  1. Over-Optimism: Most investors tend to exaggerate their own abilities
  2. Over-Confidence: Investors overstate their knowledge, understate the risks
  3. Self-Denial:  Investors ignore statistics, employing HOPE as their investment strategy

Simply “Hoping” that stocks somehow rebound to new highs and that the economy is going to go back to what we saw in 1982-1999 or even 2003-2006 is not a strategy. You need to be proactive and take charge of your portfolio.  Simply using a traditional 60-40 or 50-50 split of stocks and bonds, is not going to get you blissfully to retirement. Waiting for a rebound will cause heart aches while trying to time the market will cause heart attacks.

As an investor, there are three steps you can take to improve your ability to handle the current market:

  1. Actively manage your assets: Employ Tactical Investment Strategies
  2. Develop Reasonable Expectations: Hope may win the Whitehouse, but not as an investment strategy
  3. Be the expert or hire one: Many portfolios are performing well. If yours is not, get a free second opinion

This is the most difficult investment climate in several generations, but there are very attractive opportunities. I would focus on absolute return types of investments. Many quality corporate and municipal bonds are currently VERY attractive, some in the 7-8+% range, as well as high yielding stocks and preferred stocks, many yielding even higher. However, it is critical to have someone who knows what they are doing in this arena. Just buying based on yield or ratings could be disastrous. These are tough times and they will likely get tougher.  In the ensuing bear market, millions will lose their life savings. Don’t be one of them. Be the expert or hire one.

Regards – Keith Springer

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