June 7, 2009

Enjoying the Break Yet? The Market Has Been

After 11 years of marriage to an educator, I have learned many things, and one of the best lessons is simply... do not bother an educator during the last week of school or the following week. As for your first week off, I hope you enjoyed it.

The market has been performing absolutely fantastic over the past three months. The financial markets are starting to normalize, and the current run that we have going is very nice. I have had many people call me recently wanting to put all their money back in the market since it is now "good" again (if they sold out). One point though is that the market is up somewhere around 30% from the bottom. To expect it to just continue such a fast paced recovery to pre-2008 levels is most likely not in the cards.

If you pulled all of your money out of the market, getting back in is tough. A slow, methodical investing scenario is most likely the best option. The market could have a pull back or continue higher and either way is a gamble. A "dollar cost averaging" scenario is best whether it is over many weeks or months, and please remember to diversify. Just because fund "XYZ" has been hot does not mean it will be next week, next month, or the rest of the year. Spread the money in various sectors, market caps, and internationally. There is generally not one "best idea."

If you have continued to stay invested, you have been rewarded handsomely. You are probably beating the S&P 500 for the year (+5.6% YTD), and you have let your money work for you. Whether it was your research, just not doing anything different, or listening to others (and perhaps me), being prudent and steadfast in being diversified and taking a long term approach looks to have paid off recently.

I have had some questions as to why I would have thought the market would move higher a few months back. All I can really say to that is research. If you flood the economy with money, keep interest rates low, have a reasonably low unemployment rate, and a global economy hell bent on turning itself around, the market will follow. History has shown a determined Federal Reserve and the American consumer to be two of the most powerful influences in the world of economics. The old saying of "Don't fight the Fed" still rings true.

Looking forward, the housing market is still troubling, but all signs are pointing to it bottoming. Foreclosures will continue to be an issue, but the recent reports are still to move in the right direction. Also, with everyone staying at home for "staycations" this summer, it seems that home improvement has started to flourish again. The complete remodels may be out at the moment, but painting, partial remodels, and "sprucing up" have returned. Home Depot and Lowe's both reported a pick up in sales recently over the previous quarter.

Unemployment moved to 9.4% according to the latest government report, and it will move higher. Remember that unemployment is a lagging indicator and not a predictor. Most companies hold on to employees for as long as possible then start layoffs. With the remaining workforce, they go lean and try to squeeze every bit of productivity out of them before hiring any new staff. Once again, history... It shows that the market moves 6-9 months before the economy, and unemployment moves 6-12 months after the economy. Market --> Economy --> Unemployment

Stay diversified. It helped you in a down market, and it will help you in an up market as well. International, mid cap, and growth funds have been leading the market, and your diversification should have helped you reap some of those gains.

Finally, researching and asking questions and for help are important. Research everything you can and ask questions about it to people you trust. You preach it to your students in the classroom, and it is sage advice for you, too.

I wish you all a very happy, peaceful, and relaxing summer. In my next post, I will give you just a bit of homework for you to handle while you have some time. Not too worry though, I'll give you another week or so to relax. Enjoy!

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