Personal Injury Law

Who is Afraid of Virginia Stock Market?

By Rod Heggy

Selling off, even in market ?crash,? later called more accurately a ?correction,? is usually driven by switching from the investment strategy based on company fundamentals to the strategy based on market timing. The market timing approach always fails because it is based on prophecy, only without God?s help. It fails because it is based on emotion, fueled by media language, and not business principles. It fails because it takes the investor out of the market just when opportunity, even in an inflated market, abounds.

A true market ?crash? involved auction rated securities, which most people did not own. The regulators, for a change, made the issuers step up and buy the failed product back. This ?recall? of a bad product made sense. Thus, that ?crash? was defanged and the whole thing has all but fallen off the stage. If the regulators had not acted, the wirehouses would have turned it into a debacle because they were treating it as a sales practices violation by their own brokers. I compliment the regulators even though I was deprived of many years of gainful litigation employment.

This market down turn has the same lesson for investors all the others have had. Do not over concentrate. Diversify. Balance stocks (sometimes called equities) against other types of investments in a portfolio (bonds, CDs, mutual funds that are not themselves concentrated only in stocks) or against non-market investments like real estate. Read at least the first couple of pages of the prospectus to make sure the product, be it a mutual fund or whatever, does not over concentrate your portfolio. Do not rely only on your financial advisor to read it for you. Your financial advisor might need the commission that month, or might have been misled by the broker-dealer employing him or her. Most will do their best. When in doubt, get a second opinion from your Certified Public Accountant (except during tax season, when their attention is too divided). You should be in doubt enough to consult your CPA every two or three years even if you have a static portfolio, whether you think you need to be or not. Let your CPA scare you a little bit, even if you do not change anything. If they scare you a lot, rethink your strategy. Many persons who thought they might retire this year or next will regret not doing so.

Those of us that never gave up the concept of whole and universal life insurance still have cash value sitting there. While it might be at risk in a general depression, in every market ?correction? I have lived through it has been ?untouched.? It is just another diversification and another form of professional money manager, even if it is not a dramatic gainer. There may be better products to use, but I got in at a time in my life when I understood that product and did not understand the stock market, and it has always served me well.

Full post as published by Terra Extraneus on October 11, 2008 (boomark / email).