Monday, December 22, 2008

I lost how much?

This year is one of those years that come around hopefully only once in your lifetime. A year when 30 to 50% of your investment portfolio is lost to the market. For young and middle age investors, these losses can and will be made up over time, but it's still depressing and disheartening to see your balances dwindle down to levels not seen in 5 years or so. For retirees and pre-retirees, this has been an awful year, as the losses mean less money in your retirement accounts for future years. It could mean less money to live on in for the next few years. For some it may mean they may need to go back to work, work longer, or find a part-time job to supplement their lower projected income. For many folks it means they will have to save more and save longer before they can think about retiring. Curiously, no one seems to be blaming anyone in particular for this problem. Because it is such a widespread event that has affected virtually everyone in the world to some degree, no one is pointing their finger at anyone person, company, strategy, or technique for this market crash. To be sure there are reasons to point to for our current predicament: the subprime mortgage fiasco, too little oversight on Wall Street, too much debt and too much credit for people who really had no business borrowing money in the first place, questionable gov't intervention, the list goes on and on. As a financial advisor, I had no one, not one client call me and blame me for their investment losses. While I try to make sure that my clients understand the risks and rewards of investing, and have a proper expectation of returns on investment, I think that people understand that this has been a strange and cruel year to which no one has been able to escape losses. Since everyone has lost money in this market, I should expect to have lost some money too. This has been the perfect storm of bad markets. Traditional asset management suggests that when stocks under perform, bonds perform well and viceversa. This year not only have stocks performed badly, but so has bonds and even cash. While the Federal Reserve has tried to stimulate the economy by lowering interest rates, they have cut rates to the point where CD's and money market accounts are earning less than 3% for most people, hardly the type of return people need for their long term savings. There is one man that people are now blaming for losses in their accounts, if they were unlucky enough to have invest money with him: Bernard L. Madoff. He lost it all! Now that's a bad way to end the year. I'll have more to say about him tomorrow...

No comments: