The Times They Are A-Changin'

I have left my post. I've abandoned my writing. I have grown tired.
All of these might have been suitable titles for this post, but the sad fact is that I have just been too busy and could never find both the time and energy to sit here and create. I will soon be retiring and perhaps I will find some time then, though to tell the truth, retirement looks even busier than working every day. There are things to repair that have been overlooked or ignored. There are things to paint that I have conveniently put off. There are bathrooms to upgrade. There is ALWAYS yardwork to be done.

Actually, I don't feel too bad about not posting anything here since August, because I appear to be the only one who ever visits this blog anyway. That's not a whiny complaint, just an observation. I haven't done much to encourage visitors or promote the site in any way. I write as an outlet, and because practice is important. I used to believe that practice makes perfect, but then I learned that nobody is perfect, so I quit practicing. But now I plan to find time to practice and if you have wandered back here again, I hope you will find something interesting to read. Even more important, I hope you will PLEASE leave a comment or at least say hello. Til then (December 19th) I won't try to write more.

Today's Recession Update

How can you protect your retirement finances?
If you are concerned about your 401K or IRA or other investments you hope to use to finance your retirement, now would be an appropriate time for concern, but not for panic.
After the sudden emergency ¾ point rate cut by the fed yesterday, Asian markets recovered nicely, though early news from the European markets was not so upbeat. The Korean market rose nearly 11%, Japan recovered about 2%, Hong Kong eked out a point or two and Australia rose 4 ½ % after the fed announced the unexpected cuts. Will that be enough to stop the decline? I doubt it, but it may be enough to slow it down so that we have a softer landing and a shorter recession period. As I wrote yesterday, just the news headlines seem to trigger panicky investment moves by pension and hedge fund managers and individual investors alike. Cartoonist Bob Englehart had a cartoon in the Hartford Courant on January 17th with the following caption: “DESPITE THE MEDIA'S CONSTANT ATTEMPTS TO BRING ABOUT A RECESSION, EXPERTS SAY THE ECONOMY IS STILL STRONG.” Perhaps it is not so strong, but certainly the media is pouring gasoline on the burning building and shouting for someone to call the fire department. At what point does the media cross the line between reporting the news and creating the news? Or is there a line anymore?

On the flip side, there are a number of economists and fund managers who believe that any major moves from stocks to bonds might be something to regret later. In 1987 those who basically sold their stocks at the bottom failed to benefit from the recovery when stocks later soared. To a lesser extent the same thing happened in 2002. So your protection strategy should be based on just what your retirement timeline is, not headlines. If you plan to retire in 5 to 10 years, it might be best to simply ride this cycle out, because you likely have time to recover any losses, assuming that your present portfolio is reasonably diversified. If you plan to retire in less than 5 years, it might be wise to shift some portion of your holdings into bonds. Some analysts are predicting bond yields in the “high single digits” before the markets shift back to equities. The fact is, no one can say for certain what tomorrow will bring. One thing is certain though.
The is more unstable footing ahead for perhaps the next 5 or 6 quarters, maybe longer, so if you have a longer time till retirement the question is whether you can ignore all the headlines and immunize yourself from the panic while this cycle runs it’s course. One economist I spoke with many years ago put it this way. If you can’t sleep at night, you have too much at risk. If you sleep all night without interruption, you don’t have enough at risk. Maybe that’s not the proper gage for you, but it illustrates my point. If you think you can stay calm amidst all the hysteria, maybe you should just leave your 401K alone for now. Reassess every quarter, re-balance as needed, but stay with your plan. If that causes you too much heartburn, then move a portion of your holdings into bonds and then watch closely. At some point you will want to get back to your “pre-panic” balance. Likely you will miss some of the trends upward before you know it, but I don’t think that will be next week or next month, maybe not even next year. If you find yourself watching your balance every day and wringing your hands, then the next several quarters will be difficult for you.
Tomorrow we’ll talk more about how this whole scenario developed