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What Now?

What now?  That question can always be contemplated in almost all situations, but it is especially pertinent now for those of us near, or in retirement.  There seems to have been a seismic shift in not only the investment environment, but indeed in the way our government intends to go about our business.  It is involving itself in business and the daily affairs of its subjects as never before.  Now this can be either a good or bad thing, depending on both your perspective and how far it goes, but given government's track record in handling our money, I am betting on the latter.  But, it is what it is, so what do we do now?

During a previous economic downturn a good friend of mine whose business was struggling said that the only thing he knew to do was to do what had worked before.  Of course he did not mean that he would not be alert to new and better ways of doing business.  I am sure that any successful businessman is always looking for better ways of conducting his business.  What he meant was that when times get tough, he first looks at what has worked in the past, considering the proviso that "past results are no guarantee of future outcomes."  What he meant was that he was going to beat the bushes even harder and try to drum up some business as he had always done.  Perhaps this is an attitude we should consider.

We need to be especially wary of anyone who says that this time things are "different."  Already I have read a number of analysts who opine that the "buy and hold" strategy is dead.  Of course, that strategy does look questionable in light of the losses buy and hold investors have experienced over the last year.  If your perspective extends for only a year or two, I can understand your concern.  However, most investors perspective extends for more that a couple of years.  Market timing is a difficult and nearly impossible technique to pull off successfully for any extended period.  I have long recognized that I am not gifted enough to attempt that technique.  When I hear my friends brag about how they have jumped in and out of the market successfully, I envy them but am still leery of believing that they will be any more successful over the long run than the individual who maintains a well diversified portfolio and stays the course.  Faithfully contributing to a well diversified investment plan over a number of years, and taking advantage of the benefits of "dollar-cast averaging" has proven to be successful for many investors.  So, if you are one of the very few who can successfully time the market, more power to you.  For the vast majority of us who are less gifted, we are left with an approach that is much more basic, and one the has proven itself over the last hundred years.

This is not to say that one should not arrange their portfolio to take advantage of current interest rates and economic conditions.  This is where periodic portfolio adjustments can be beneficial.  If you are years from retirement, most of your portfolio (perhaps 80%) should be in low-cost, fairly conservative mutual funds. (See my previous article "Okay,So Here's the Deal")  If you are saving for a goal that is much nearer, say within five years, you should keep that money in much more conservative vehicles such as savings accounts, money market mutual funds, or short term bond funds.  If you cannot stand any risk, then you should probably have that money in CDs.

So here is what I am doing now.  I am sticking to my asset allocation plan.  I am re-balancing my little number on a semi-yearly basis, and I have allocated a bit more of my retirement fund contributions to bonds and cash.  I am following my friends advice and trying to do what has worked for the past hundred years.  And I am hoping that our federal government and the current administration does not mess things up too bad for us retirees.  They had better tread lightly and think about the future a bit more than they have so far; they need to remember that capitalism is what has made this country great.  I think that it will work for the future as well.


Fly/Drive Safely

30 May 2009

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