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Are You In or Out of the Market? What A Difference A Year Makes

by Robin S. Davis, CFP

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Are You In or Out of the Market? What A Difference A Year Makes On October 9th, 2007, the Dow Jones Industrial Average (DJIA) closed at an all time high of 14,164.  On March 9th, 2009, it closed at a low of 6,547.  One year later, nearing the same date, the "Dow" is back over 10,000.   The DJIA is a price-weighted average of 30 actively traded blue chip stocks and is the most widely used indicator of the overall condition of the stock market.  

We can blame the start of the recent volatility on the 2007 subprime mortgage crisis and the 2008 global credit meltdown, but this is not the first time corporate, government, national and global issues have turned your retirement plans upside down.  Going back in history, we can fault market volatility on The Crash of 1929; World War II in 1939; Korean Conflict in 1950; Cuban Missile Crisis in 1962; Vietnam War in 1964; Iran Hostage Crisis in 1979; Black Monday in 1987; Savings and Loan Crisis in 1988; Desert Storm in 1991; World Trade Center and Pentagon Attacks in 2001; Iraqi War in 2003.  The bottom line is, the markets will continue to go up and down in the future, affecting the assets that provide the income you are using to keep the lifestyle you've chosen intact.  Even the wealthiest people are feeling less secure today than they did yesterday.  

The decade of 2000-2009 has been dubbed the "lost decade" as most indices averaged annual returns in the negative numbers. The DJIA began the decade at an open of 11,497 and closed at the end of 2009 at 10,428.  This may have you still sitting on the sidelines in defensive mode and not knowing which way to go in the future as health care, income and estate taxes, and real estate values are at the top of the list of the most unknown, but much needed information, for making your next move.  

Today, diversifying into equities of different types of sectors and industries in your portfolio is not enough. No matter how wealthy you are, there are four basic needs that should be met by your investments: preservation of capital; income; capital appreciation (growth); and insurance needs.  Preservation of capital is the money you do not want affected by volatility in the market at all.  This could include cash, money markets and CD's.  Certain investments can be used to provide the income you need today, but should include the anticipation of future income needed for possible health issues, helping children, or other unknowns.  Capital appreciation is the money you do not need today and could be invested more aggressively for future growth, which may be needed later to generate the additional income mentioned above.  Insurance, which is really an investment in protecting some part of your life, like your health, car, house, income, and estate (wealth replacement), is a big part of the financial independence equation.  No one investment can possibly accomplish these four totally different goals.  Therefore, there has never been a more important time to be creative and strategic in using the different types of investments available to you.  

For all we know, the decade ahead could be one of the best we've ever experienced because of the "lost decade".  Looking ahead, innovation and technology will continue to surprise us in areas of green energy, nanotechnology, gene therapy, and robotic surgery to name a few.  Quality companies are planning ahead in ways we cannot imagine today and hopefully affect the markets in a positive manner.  

One way to possibly increase your chances of accomplishing your financial goals, is to work with a professional who analyzes, monitors, and researches products, creatively uses them to achieve a certain objective, and recommends changes when the market, or your life, changes.  They can keep you informed of your portfolio results and keep you up on changes regarding complicated tax and estate issues. They can help keep your emotions at bay and your sights on your long-term goals.  

So whether you are in or out of the market right now, whether you are more fearful of the downside or more excited of the potential upside opportunities, you may want to keep this quote by Sir John Templeton, founder of the Templeton Funds, in mind:  "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria".  

Robin S. Davis is a Certified Financial Planner™, a member of the Financial Planning Association, and is the owner of Davis Wealth Management Group, Inc., in Stuart, Florida. She has been advising retirees since 1984 and has held over 500 public seminars on financial issues. She is the author of the book Who's Sitting On Your Nest Egg? Why You Need a Financial Advisor and Ten Easy Tests for Finding the Best One. Davis expresses the importance of utilizing a competent financial advisor. For more information, please call (800) 896-5422 or (772) 463-4441, visit, or email:
Davis Wealth Management Group, an independent firm with securities offered through Summit Brokerage Services, Inc.  Member FINRA & SIPC, and advisory services offered through Summit Financial Group, Inc., a registered investment advisor.

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