The Miracle of the Dow – Falls 10 Storey’s and Walks Away!

If you believe what is happening to the Dow then a miracle happened this week. The Dow effectively fell out of a 10 storey window and got up and walked away.

If you believe that then you may have a problem grasping the reality.

I’ll grant that with the government manipulations going on the save the stock market, sorry I mean the economy, they may well put a temporary floor under the market. But does everyone believe this is the end of the subprime mess, the credit crunch the derivative scams and any number of things that have not even come to light yet? I don’t think so Tim!

Even if it is, caution is called for if we Baby Boomers are to protect our nest eggs. If you have market exposure it might be a good time to reduce it and sell into the rally if it continues next week. This is especially so if you are only down 10% or less on your equity investments. At the very least consider putting a stop loss on your positions either electronically or verbally through your financial planner or broker. Rule #1 Avoid Large Losses is paramount and if the market gives you a second chance to recover some of your losses consider taking it in this market.

The other shoe needs to drop (in fact it may still be several pairs of shoes) and when it does we can expect another leg down on the Dow. It will get resuscitated by the FED again no doubt but the market will do what it wants eventually regardless of what they do. Sometimes it is better to stand aside and let the market cleanse itself of all that financial wheeler-dealing and shenanigans.

I’ve said many times on this blog Baby Boomers need to focus on themselves and ask how market moves are going to affect them directly. Forget what is happening generally, and forget using “average” losses or the like to rationalize and do nothing. Only look at yourselves and the real absolute returns on your investments in each asset allocation separately. Make sure each asset class is performing or take action to fix it.

It is being selfish, but you need to be selfish when you have to look after your own retirement. Your money needs to last you for the rest of your life. You may get social security and a pension. If so good luck to you. But if you want to live in reasonable comfort you will need a nest egg and if you have one you will need to protect it yourself. No one else will do it for you.

In Australia we have a famous artist called Ken Done who thought he had put his money in safe hands with an experienced investment team. He is suing the financial advice arm of the Commonwealth Bank for losing $53M of his nest egg. Ouch! His claims include:

  • Despite setting up an experienced investment team in 1999 and setting strict ground rules on what they could invest in, the first clue that something had gone wrong did not appear until April 2005.
  • Done alleges he was promised that his money would be managed by “leading financial advisers” including the Commonwealth Bank, Deutsche Bank and other “leaders in their field”.

I have no idea who is right on this. It is in the courts so I won’t comment other than to say the only person you can trust is yourself.

If you are in Mutual Funds through retirement funds then call your financial planner or fund manager and discuss with them how you can take advantage of this rally to reduce your exposure to equity markets and limit your losses at least until this market really does shake out all the problems.

When the Dow rallies strongly from such a drop, be very skeptical and do not trust the market to invest more of your hard earned money. The Dow has fallen 10 storey’s and broken every bone in its body and will need some time to recover. Be patient and in the meantime protect your nest egg by avoid large losses if you can.

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