The Markets and Your Investments

September 15, 2008

As you are likely aware, there has been considerable turmoil in the financial markets lately.  The announcement earlier today that Lehman Brothers, the fourth largest U.S. investment bank filed for bankruptcy protection was just the latest in a series of distressing events in the financial sector.  Once again, the markets responded with a significant drop in value today.  Being constantly bombarded with all this bad news can be very concerning and many analysts predict that this carnage is not over.

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund told a news conference: “I cannot say the worst of the financial crisis is behind us ... The consequences of the financial crisis are not over but the root causes are far behind us.”

Much of what we’re hearing about now are the results of the credit crisis that came to light more than a year ago.  These are the “after shocks”. 

So, as investors, what are we to do?  Following are a few reminders to help you through these volatile markets:

1. Stick with your long-term plan.  Short-term market fluctuations should not be a major cause for concern regarding your long-term investments.  A well-diversified long-term investment portfolio is designed to meet your investment objectives in an appropriate time horizon.  Don’t make decisions on your long-term investments based on short-term events.
2. Look beyond today’s markets.  No one can predict what the market will do and when.  Think of the stock market as a store – prices increase when demand is high and drop when demand is low.  The long-term trend however is up.
3. Don’t let the media headlines distract you from your plan.  The media usually focus on market declines because these events get more attention than when the market climbs.  It’s not that there isn’t bad news in the financial markets these days – there is.  But don’t forget, bad news sells newspapers.
4. If your objectives haven’t changed, neither should your investments.  The investments in your portfolio were purchased because they were compatible with your long-term goals.  So, unless your investment objectives have changed, there’s no reason to stray from the equity (stock) mutual funds you’re invested in simply because of a market correction.

For many investors, staying true to a long-term financial plan in the midst of such volatility can be challenging.  However, a well-diversified portfolio geared toward your financial goals and risk tolerance is still the best defense against market volatility. Historically, stock market downturns have been followed by even greater recoveries, and those who stayed invested have been rewarded.

If you would like to discuss your portfolio and your financial plan, please call us to arrange a time to do so either over the phone or in person.  Thank you for your continued confidence in us to provide you with financial advice and direction.