It"s Official: It's a Bear Market
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It was an inauspicious start to the third quarter of the 2008 fiscal year. Led by General Motor's fall to a stock price of less than $10 per share - a level not seen since the 1950's - the Dow Jones Industrial Average moved officially into bear territory on Wednesday, July 2, 2008. The question now becomes how long will it be before the market begins its inevitable move to the upside?
The length of a bear market depends on whose definition of the market's condition you choose to believe. As stated before, the accepted definition of a bear market is when a level of 20% down from the most recent high has been reached. O.K., by that definition we are in a bear market. The market was up 73.03 points at the close of the shortened trading day on Thursday. Would then, a simple move up of 100 points on Monday mean we are out of the bear market? The point is, you can't be guided by definitions.
Some analysts who have studied market moves have said that the average bear market lasts 12-14 months. Others have said that we experienced a low-level bear market that lasted from about 1973 to 1982. Others have said they can be as short as few weeks or a few months. One thing is for sure; if you are anticipating further losses, you are motivated to sell. And negative sentiment will feed on itself in a vicious circle.
The uncertainty of just what is the market condition at any one time makes it all the more important to have a good plan and be able to stick to it. The events of the first half of 2008, with oil surging to $140 a barrel and Bear Stearns nearly collapsing into bankruptcy and the fear that other financial institutions might follow, made the stomach churn. But these events drove home again the importance of asset allocation. For example, if you had your money in a broad U.S. stock-market index fund, you lost about 16% in the first half of the year. But investors who split their money in a basic 60/40 mix lost roughly half that amount, because the U.S. bond market gained 4% over that period.
It isn't, of course, that simple because your plan has to meet your individual needs and circumstances. But it does mean you have to have a well-thought-out plan to help you avoid panicky or impulsive moves. It is almost too easy in a 401K plan to shift money from one fund to another. When every thing's headed down, shifting into cash can have the immediately gratifying effect of shielding your portfolio from losses. But the sense of relief is often short-lived and replaced by another nagging worry of when it is time to get back in.
Timing the market is a zero-sum game. Professional investors can't do it with consistent success, and a Morningstar study two years ago confirmed small investor's tendency to buy high and sell low.. You have to be very exceptional to get out of ham's way in a period of,say one year. In 2007, while six of the ten worst days for the S&P 500 were in August November, the worst of all - a slide of 3.5% - was in February, according to Vanguard Group Inc. But many of the best days were also in August and November, including a 2.9% jump on Nov.13.
So take a deep breath and review your investment plan, and know where you are in the retirement cycle. A top priority should be to contribute to a 401K plan or any other employer-sponsored plan. A smart plan depends on your age, how much you have already saved and whether you have a traditional pension plan that will pay specified monthly benefits.
In the meantime, be sure to keep your risk within your tolerance and keep ahead of inflation.
I invite your questions.
Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
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Jerry Cole - Retirement, Investment |
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