Turn for the worse. Now What? – Four keys to investing over the next yearThursday, November 20th, 2008 by Cass Chappell, CFP®
The major stock market index has closed today at an 11 ½ year low. The S&P 500 closed at a level not seen since April 14, 1997.
Since our week-long, daily barrage of blog entries in mid-October we have posted very little. Twice in that time-span I actually had a blog typed up, chock full of investor education and confidence-inspiring quotes, only to see the market turn around and finish the day on a positive note.
Last Thursday is a prime example. This turned out to be the third largest positive move in the Dow in history. It happened in the final minutes of trading, after being down big for most of the day. A client called me early in the day asking what my blog was going to say. He had apparently gotten used to the “keep your head up” blog postings.
Today was nearly the opposite of last Thursday. It seemed that the government was going to announce a bailout of the auto industry. Because of this rumor, the market shot up midday. Only in the closing minutes of trading today did the markets take a tumble.
Almost every sector of the market is down for the year. Most are down BIG. It seems that no asset class is immune to this crash.
What is an investor to do? I think that most of you will agree that now is NOT the time to sell. It’s too late to sell.
In my opinion, these are the four keys to investing over the next year:
- We are reviewing to see that our clients’ investments are diversified. A mix of large, medium, and small companies. Domestic and foreign. Equity, fixed income, and alternative. Are there any gaps in allocation?
- Pay close attention to small cap investments. This asset class has typically been the first to rally when past bear markets have come to an end.
- Fixed income may be an important asset class going forward. The spread between corporate bonds and government bonds is among the largest in history. If, or when, these spreads contract, corporate and municipal fixed income investors could be rewarded nicely.
- Stay in the market. History has shown that the turn-around from a market bottom can be very rapid.