Here We Go Again

By Mark Folgmann

Once again I’m watching human behavior take over and it’s causing people to do the wrong things at the wrong time. The individual investors that sold their holdings after the major market decline in 2008 and have been sitting on the sidelines throughout 2009 are now ready to re-enter the market. Be very cautious since we have already witnessed a 25-75% increase since the March 9th low depending on which asset class we are discussing. This is the problem with investors that try to time the market and are controlled by fear and greed. You have to always make multiple right decisions. When do I get out and when do I get back in? Make one wrong decision and you loose money and run the risk of never recovering. In my humble opinion a properly diversified portfolio will always win over the long term. Instead of jumping back in after this major increase it might be smart to dollar cost average back into the market to reduce your risk of buying after a major run up in the markets.

For those of you that did not have a diversified portfolio last year and suffered significant losses but stuck it out, this might be a perfect time to reorganize your portfolio. If you’re in this group it would be a great time to diversify since we have had a significant increase in your portfolio during the current year. Hopefully you have realized that a prudent investor does not expose himself to a portfolio that consists of 100% stocks regardless of his age. The time tested estimate of holding your fixed assets within your portfolio equal to your age is a real good rule of thumb, even when the media wants you to believe these common sense strategies somehow have become obsolete.

Dalbar recently completed their annual survey on investor results and once again confirmed that we are not very good investors. The most recent 20 year results for the S/P500 ending in 2008 was 8.5% per year yet the average investors return was
a paltry 1.9% after fees, taxes and bad behavior. Remember your retirement accounts are like a bar of soap. The more you touch them the smaller they get. Remember Wall Street operates on volume. Transactions generate fees and fees generate profits for Wall Street. Pick a prudent allocation and diversify your portfolio with low cost investment options. Add regularly and rebalance on your birthday. It’s really that simple!