How low can the market go?  Personally, I hope not much lower (Of course, we're all hoping that...)  I feel if the government can get over their partisan bickering and actually do something, that would go a long way to helping the markets gainsome stability.  The volatility we're seeing is caused by all the uncertainty and fear.  Markets can handle bad news, what they don't like is not knowing what the news will be. 

So should I sell my investments and wait this thing out?  ABSOLUTELY NO!!!  Following a bear market, the first 3 months typically have SIGNIFICANT returns.  The average return in the first 3 months after a bear market is over is 13.9% (Source:Strategic Research Partners).  Based on historical averages, that's more that an entire year's worth of returns in just 3 months.  Odds are if you sell out and go to cash, you will have ended up selling low and then will out of frustration after the market rebounds, end up buying back in when the market is much higher than when you sold.  Remember the goal is buy low & sell high, not the other way around.

So how does what we're seeing now compare to other bear markets?  Here's a chart of the S&P 500 showing the length & impacts of previous and the current bear market:
 

Start	End	Start Price	End Price	Months	% Change
3/6/37	4/29/42	18.68	7.47	62	-60.0%
5/29/46	6/14/49	19.25	13.55	37	-29.6%
8/2/56	10/22/57	49.64	38.98	15	-21.5%
12/12/61	6/27/62	72.64	52.32	6	-28.0%
2/9/66	10/7/66	94.06	73.20	8	-22.2%
11/29/68	5/26/70	108.37	69.29	18	-36.1%
1/11/73	10/3/74	120.24	62.28	21	-48.2%
11/28/80	8/12/82	140.52	102.42	20	-27.1%
8/25/87	12/4/87	336.77	223.92	3	-33.5%
7/16/90	10/11/90	368.95	295.46	3	-19.9%
3/24/00	10/9/02	1527.46	776.76	31	-49.1%
Avg				19	34.1%
10/9/07	Thru 9/19/08	1565.10	1255.10	10	-19.8%

Source: Strategic Research Partners

So what should I do?  Have a well diversified portfolio to help minimize downside risk, but also make sure you own the right stuff so you can participate when the market does recover.  If you don't feel you own the right stuff, call me to discuss if the way I do things would be right for you.

The market is up and down and up and down and....well, you get the point.  What is an investor to do? First of all, you should have a well diversified portfolio.  This doesn't just mean owning a bunch of mutual funds, but a wide array of investments that give you exposure to all areas of the world, stocks and bonds, developed and emerging, etc.  Further more you need investments with low levels of correlation.  It does you no good to own a bunch of stuff that all go up and down together. 

In over 15 years of experience I've seen some of the most volatile days in the history of the modern markets.  So often I've seen investors bail out of the market & say to me, "I'll get back in after the markets recover"  Isn't this selling low and then buying high???  Here's a chart you may have seen before:
 

In-and-Out Investors:

Penalized for Missing Key Market Changes

S&P 500 Index Average Annual Return (%)

Period of Investing       5-year (12/31/02-12/31/07)          10-year (12/31/97-12/31/07)

Staying in                     12.7%                                       5.8%

Missed top 10 days       6.5                                           1.1

Missed top 20 days       2.0                                            -2.6

Missed top 30 days       -1.7                                           -5.7

(Source: Ned Davis Research, Inc.)
 
There are many prognosticators towards these stats & they ask what are the odds of a person missing the best days...there's an equal chance that if they sell out they might also miss the worst days of the markets. 

This may be statistically possible, but this however negates a crucial part of an investors behavior-their fears and irrational behavior in times of turmoil.

I dare say any one who doubts the significance of these numbers has never dealt with a person who has lost hundreds of thousands of dollars and now wonders if they can retire or can stay retired.

If you review market statistics, you will see that the majority of the time there is a huge swing in the market, it is most often followed by a market move to the opposite direction.  Sharing with you experiences of investors I have dealt with, they frequently want to sell after the market has a huge sell-off.  Should they do this they would miss out on the high possibility of a market rebound.  Yet they do not sell after a huge rally and capture their profits.  The phrase they use on CNBC all the time is to sell the rallies and buy the dips.

To further demonstrate this, lets review just this week at the S&P 500.  Monday: -4.7%, Tuesday: +1.7%, Wednesday:-4.7% again, Thurday: +4.3%, Friday, at 11:20am as I write this: +3.6% (source:WSJ.com).  For those investors that rode this week out, you'd be all of .1% for the week.  I dare day thought that after Wednesday, many people jumped out and missed the 2 best back to back days in over 6 years (Source: CNBC)

I just started this blog a week ago & plan on adding stuff on a weekly basis because I take a long term approach to investing, but in light of the amount of Pepto consumed this week on Wall Street warranted a post addressing some facts and issues I feel are important for people to know.

Last point for today, there was an article in Smart Money Magazine from October of 2004 that surveyed Average markets returns and compared those to the investors surveyed.  The results are shocking.  The average stock fund returned +9.53% annually, yet the investors only got +2.60%. Bond fund investors did a little better: the average bond fund did +8.19% and bond fund investors got +4.20%.

Investing is not an easy thing.  If your results aren't where you want them, give me a call. Lets talk & see if the way I do things is right for you.

Small business owners thinking about setting up retirement plans for their employees should be aware of important deadlines coming up in October.

A SIMPLE or Savings Incentive Match Plan for Employees, must be established by Oct. 1 for 2008 contributions.

Business owners who requested an extension to file their 2007 tax return have until Oct. 15 to set up a SEP or Simplified Employee Plan and take a deduction for 2007.

What type of plan is right for me and/or my company?

A number of factors guide us as to the plan that is best for today as well as down the road. Please call for a brief conversation and we can decide what is best for you.  Also, under "Services for Business", click on "Retirement Plans" for more information.

 

In general, IRD is income that a decedent was entitled to receive but that was not properly includible in the decedent's final income tax return under the decedent's method of accounting.

IRD includes:

• All accrued income of a decedent who reported his or her income on the cash method of accounting,
  
• Income accrued solely because of the decedent's death in the case of a decedent who reported his or her income on the accrual method of accounting, and
  
• Income to which the decedent had a contingent claim at the time of his or her death.
  

Some examples of IRD for a decedent who kept his or her books on the cash method are:

• Deferred salary payments that are payable to the decedent's estate,
  
• Uncollected interest on U.S. savings bonds,
  
• Proceeds from the completed sale of farm produce, and
  
• The portion of a lump-sum distribution to the beneficiary of a decedent's IRA that equals the balance in the IRA at the time of the owner's death. This includes unrealized appreciation and income accrued to that date, less the aggregate amount of the owner's nondeductible contributions to the IRA. Such amounts are included in the beneficiary's gross income in the tax year that the distribution is received.
  
  The IRD has the same character it would have had if the decedent had lived and received such amount.

So what does this mean?  It means that if you do not plan properly and educate your beneficiaries (and most people don't), your largest beneficiary will probably be the IRS.

So what do I do?  This is where Gunnell Retirement and Estate Planning will work with you and your beneficiaries to implement the appropriate stategies so that the bulk of your estate goes where you intend it to go, and not to Uncle Sam.