Man Bites Dog

Man bites dog, news at eleven!

One Nation’s Perspective

September 21, 2008

Just like panic created a gas shortage in Tallahassee, panic fueled by the media is causing individuals to act irrationally. Yes, things aren’t pretty at the moment, and yes, they may actually get worse before they get better, but that does not mean that the U.S. financial system is broken. Avoid the urge to panic and believe in sound longterm
strategies.

If you are within five years of drawing off of your retirement savings (or education savings for that matter) and all of it is in the stock market, then it is past time to re‐evaluate your current position and goals for the future. That doesn’t mean you need to sell the farm and move everything to cash, but you also cannot plan on the government
bailing you out.

For long‐term investors, and by this I mean if you are not going to draw from your savings for at least ten years, now is also a good time for you to evaluate your current position and goals for the future. Take the time to see how you can position yourself in order to take advantage of this time.

For all, let’s talk about some sound financial principles:

• Diversify! Own mutual funds as opposed to individual stocks. With mutual funds you own dozens if not hundreds of stocks. With a mutual fund, if one stock collapses (or disappears like Lehman Brothers), the rest of the fund is still there.
• Diversify! Own several mutual funds that represent various sectors of the economy, such as large companies, small companies and international companies.
• Diversify! Own some mutual funds that focus on bonds (the percent should increase as you age) and other areas outside of the stock market like real estate and/or commodities (usually no more than 10‐20% combined in these areas).
• Diversify! Own some “safe” money – money in CD’s, money market accounts, REIT’s (this can also count towards your real estate percentage mentioned above), annuities, cash value of life insurance, etc. This percentage will fluctuate depending on your risk preference and timeframe.

The problem with rushing out and pulling your money out of the market now is that the damage has already been done. The market is down over 20% since last October, if that money goes into a CD earning 3‐5% it takes a long time to make that up. When sitting on the sideline waiting to get back into the market you risk the chance of missing out on gains when the market turns around like the 750+ upward move on Thursday and Friday. Am I happy that my account balances are down, No. Do I believe they are going to rebound and reach new highs in the coming years, absolutely.

Another problem with the 3‐5% is the risk of inflation. The long‐term average rate of inflation is 3% (this year it
has been closer to 5%), if all of your money is earning 3‐5% then you are just keeping your head above water with an occasional mouthful.

What these times mean. Listed below are several suggestive actions to help shore up your situation. Most of you know, I practice what I preach so there isn’t one that I haven’t done myself (you can take that for what it is worth):

1. Now is a great time to pay down debt. Since savings rates are relatively low, pay off higher interest rate debts. Start with your highest rates, usually the credit cards, then move to the cars, then to the mortgage. If you’re earning 1% in savings and carry a 6% mortgage, then why not put a little extra towards the house. Remember interest not paid is interest earned, so save yourself some bucks in the long run.
2. Increase your long‐term savings, i.e. 401k, deferred comp, TSP, 529’s. During the last year the price of the market has been reduced by over 20% ‐‐ everything is on sale! And we are not talking about fly‐bynight dot.com’s, we are talking about stalwarts like GE, Citigroup and Apple. This is the only industry that
   when things go on sale everyone is afraid to buy. Remember we want to buy low and sell high and you have to pay yourself first!
3. Examine your current portfolio. Now may be the time to get rid of the 2 star loser mutual fund you’ve been toting around for the past five years waiting for it to make a comeback. Research the funds you own, if they have been downgraded then it is time to find a new workhorse. Remember the principles discussed above.
4. Take a magnifying glass to the household budget. What fees are you currently paying that you don’t need to. Who’s paying for AAA and for roadside assistance with their auto insurance and own a new car that comes with roadside assistance? Who’s paying an annual fee for a credit card when there are no-fee cards that offer cash rebates? Who’s paying for an annual membership to a warehouse store that is ten miles further, so they can save $2 on a 5 gallon jar of peanut butter (full disclosure: I am no longer
   allowed to shop unsupervised at Costco)?
5. Be wary of the quick fix, stay informed and trust what you know. Scams and con artists don’t go away in hard times they multiply. If it sounds too good or too bad to be true, then it probably is. Everyone has an agenda: newspapers need to sell papers, news programs need viewers, talking heads on TV need people
   to buy their book or their better mousetrap. [ This is where you ask, “Alright Ted, what’s your agenda?” Simple, many of you have placed your trust with me and I realize that is not a one‐time transaction. I know that I have to continue to work hard and repeatedly keep that trust. Years of work can be crippled in an instance with a foolish misstep. ]

If you have questions or want to sit down with me to review your situation then as always don’t hesitate to give
me a call (813.956.0074 begin_of_the_skype_highlighting              813.956.0074      end_of_the_skype_highlighting) or send me an email (nation@gmail.com). There is nothing proprietary in this message
so feel free to pass the information along, I love working with people that want to improve their situation. At the end of the day, 2+2 is still 4, over 93% of the American labor force is still employed and tomorrow is a brand new day.

Sincerely,

Ted Nation, CRPC
Financial Planner
Wealth Management Corporation