We have enjoyed a nice rebound in the market from the lows in November 2008 and more recently in March of this year. As I study the economics of our economy, the words of Timothy Geithner and Ben Bernanke, the current P/E levels of the market and comments and outlook of many of our revered investment analysts in the industry, there is significant concern and consensus that the stock market may be getting ahead of itself.
The data of increasing employment, mortgage defaults, retail sales declines, corporate bankruptcies, and so on point to only a tepid recovery. Add to that the FDIC recent report that there will be a significant number of bank defaults and commercial real estate defaults over the next 6-12 months.
So how does one navigate this market climate?
In putting together an investment plan, keep in mind the following:
- The market makes fools out of even the smartest investors.
- In the short run, the market may not reflect what is happening in the economy but in the long run the two correlate quite closely.
- Market timing (getting in and out of the market when you think it will move) is a zero sum game.
- It is easier to make money in the investment market by investing conservatively than it is aggressively. Think if you had $100,000 investment and lost 50% of it in the market over the last 12 months. Now you only have $50,000. In order to become whole again ($100,000), you need to get your portfolio to return 100%. In other words, to make up for a 50% decline, you need to have a 100% return. Now, take a conservative, diversified portfolio. In that same market you lost 25% of your money. You will need to earn 33% on that portfolio to become whole again.
Clients and friends, this is not a time to be aggressive but a time for diversification and low risk investing.
I encourage you to read through this newsletter for investing and tax saving opportunities.
Very truly,
Susan Templeton
Looking at converting to a Roth IRA?
Clients and friends, the Roth IRA may be one of the best
deals in retirement planning. You need to take note of this
and decide if you should convert your IRA to a Roth IRA. You
can analyze all the plusses and minuses, but you will
generally find that most people are better off in the Roth
IRA for several reasons. Here’s why.
READ MORE
How good is the Illinois 529
Education Savings Plan?
It did not make Morningstar’s top 5 list this year (it
did last year) but it should not deter you from using the
plan. Particularly the “direct plan” as the investment
choices include low cost ETFs (exchange traded funds). Last
year the Bright Start Illinois 529 plan had an investment
option that included an overly aggressive bond fund
(Oppenheimer Funds) that performed poorly. The issue has
been corrected and the fund replaced. Don’t forget that the
extra 3% deduction from your state taxes on contributions to
the Illinois plan adds to its appeal.
READ MORE
Time-worthy tactics: Tax
Loss Harvesting
September brings more than a new school year to mind;
with 2010 right around the corner, it’s time to start
thinking about tax loss harvesting again. The tactic, which
involves selling securities at a loss, is one of the best
ways to eliminate taxes on your portfolio gains---especially
since earnings on short term capital gains are taxed at your
full federal and state tax rate, unlike the break you get
for long term gains that are held for more than one year.
READ MORE
And more on taxes: how to defer,
deduct, or minimize in 2009. Some worthy ideas by
"Tax Savings for Affluent Older Families" by Kiplinger
READ MORE
Investment outlook by Bill
Gross of Pimco
One the most well regarded and pragmatic investors in my
opinion. Perhaps this market comeback is not sustainable and
we may be in for a pullback.
READ MORE
In the news
July 2009 Susan Templeton joined Advocate Charitable
Foundation Board of Directors and was recently appointed to
its investment committee.