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THE DOW WILL FALL ANOTHER 25 PERCENT
TO 9096 BY JUNE 2010
January 19 , 2008
Page 2 of 2  (pages 1  2)                     <<< previous page


What To Do Now
It all depends on what you own, how you own it, and when you think you need the money.  Over the long-term, any value lost will eventually come back – but it could take many years … unless you own shares in companies that do not survive.  I think the average investor is way better off, in general, owning mutual funds in various categories – and that in times like these, you adjust the relative weight of your portfolio components to match what you think is going to happen in the economy.   Whenever you move money around, you have to be cognizant of taxable events you generate.   “Don’t let the tax tail wag the dog”, as a CPA once told me – but factor that into the moves you plan to make.

401K and Other Retirement Accounts
There are no tax consequences for moving money around between various mutual fund options in your retirement account – so I would and have moved most of my 401K into the near-cash/money market fund option for the time being.   You can do this with several mouse clicks these days, so why not?  If you BELIEVE the market is going to drop another -24.82% then why not stop the losses now, and move the money into something stable?  There is no reason not to!  But don’t leave it there indefinitely – watch for the recovery that is bound to happen, and then re-diversify across the various large cap, small cap, international, etc. sectors.  Again – I believe the bottom won’t happen until early to mid 2010 … but that is just me, and I could be completely wrong.

Stocks and Mutual Funds
For the various stocks and mutual funds you own in non-retirement accounts, I would advise looking at each stock and fund very carefully.   What has been its track record since 10/9/2007?  Plot it against the DJIA using finance.yahoo.com – how does it compare?  What do its worst performing years look like in terms of negative growth?  Based on that plus how much of your portfolio you have in those stocks and funds, along with what you believe will happen over the next two years or so – make a judgment call about how you should re-balance your current portfolio.  I suggest you significantly weight your portfolio toward cash – where cash means CDs or FDIC-insured savings accounts.   You can find the best yields by going to http://www.bankrate.com/brm/rate/deposits_home.asp   Remember not to put more than $100,000 into any one account in one institution – because if that is the limit of FDIC insurance. 

What the Financial Professionals Will Tell You
The financial professionals will tell you that the advice I just handed out is bad – that is because the last thing they want to happen is for large sums of money to move out of the stock market.  They will tell you that trying to time the market is bad, and give you examples of how much money you will lose if you attempt it.   But you cannot ignore the fact that our economy is currently in a crisis, and that the Dow and many other asset classes (like real estate) are losing a lot of their value.  In a situation like, there is no reason NOT to move your money to safety … as long as you are prepared to jump back in when things look like they are turning around – likely in 2010.   I’m not saying to move EVERYTHING to cash – but I am suggesting you weight your portfolio toward cash.   For example, here are my current portfolio weights:

Cash                                                     52%
Stocks & Stock-related Mutual Funds      26%
Real Estate Equity                                 18%
Personal Property                                    4%

Make Your Own Decisions
Do your own research, and make the decisions that are best for you.  Balance what you believe will happen in the short-term with what your long-term needs and goals are.  Keep your eyes open, and recognize that any advice you receive from anyone is biased.  Do what you believe is right for yourself – who could possibly argue with that?  Of course, everything I've stated here is all just my opinion, and is worth exactly what you paid for it - nothing!

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