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Testing the strength of equity investors

Good-bye and good riddance to the June Quarter. This sounds similar to the feelings I had about the year 2001. The market is testing the strength of equity investors; it almost appears to be a challenge to shake out even the most steadfast investor.  

The lack of confidence affecting the stock market won’t end soon.  The SEC is supposed to be investigating other corporations for accounting irregularities.  In the past, companies have overbuilt, over-leveraged, overspent and misused accounting conventions during boom times.  If you think back to the early 1990’s you might remember the savings and loan scandal - many savings and loan institutions went bankrupt and were taken over.  The good news is that after the crisis, the economy usually emerges stronger, setting the stage for healthy economic growth.

The media will sensationalize the accounting scandal.  In one day, three different CNBC commentators mentioned, in a matter-of-fact manner, about the way accounting and credibility problems have extended across American business. The unmistakable inference is that every company is crooked, and only CNBC has figured it out. Yes, the problems with a dozen or so companies are awful, but what about the 10,000 other companies that appear to conduct themselves in a lawful and responsible manner?  While it might take a while to rebuild trust in corporate America, the economy continues to show signs of recovery.  Inflation remains subdued and earnings trends are improving.

Over the past decades there has been many bull and bear markets, and they have all come and gone.  This bear market we are currently in will eventually come to an end.  It is always best to measure portfolio results over a period of time, such as a full market cycle or over a five-, 10- and 15-year period.  Long term, consistent results are what most investors are looking for; that concept will sometimes get lost when the market outperforms as it did in the late 1990’s and then under-performs as it is currently.  

I believe that long-term equity investors that are willing to invest through the next few months, quarters and years will be happy they did.  My best advice is to DIVERSIFY.  Don’t be afraid to re-evaluate your current investments and create an investment strategy that gives you broad diversification amongst asset classes and investment styles.  

There can be tax advantages to reallocating your portfolio; by rebalancing your mutual fund portfolio you can take advantage of possible capital losses at little or no cost.  Of course, you should consult with a tax advisor.  Consider converting part of your traditional IRA into a ROTH IRA.  Don’t let the current bear market paralyze you, take advantage of the situation and make good investment decisions.

 

Nancy Hadley is an investment representative with D.A. Davidson in Sandpoint.

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Nancy Hadley

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stock market, investments, money

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