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By: Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Sunday, September 22, 2002
It’s confession time. I'm recovering from a recent setback.
I led the family on the camping trip to the great outdoors. The
first three days were a resounding success. Everything was clicking
along just fine. Especially, the roasted marshmallows around the
roaring campfires.
On the fourth day, my fortunes changed dramatically. Having moved
to a new campsite, kindling was nowhere to be found. I didn’t
have the right stuff.
Fanning the campfire only produced brief moments of glory. The
gloomy looks on the children's faces were unmistakable.
They were relying on me, but I had to admit defeat. All I could
do was to watch the smoke.
My campfire plan was simply not delivering as expected. Worse,
I had not expected to disappoint.
After many valiant tries, I stood back amid my frustration. I had
a thought.
Stock markets can also behave just like my stubborn campfire. Often
much worse!
Investors still remember this scene. Their portfolios were motoring
along quite well. Yes, there were some moments of irrational exuberance,
as Alan Greenspan put it.
For the most part, investors were delighted. Even with their investment
advisors. Those were the days of 10% to 15% annual returns being
normal expectations.
Then, out of nowhere, this stubborn bear market enters the stage.
He’s a one-man show (you're right, women wouldn’t do
this). One with an agenda of his own.
A bear with plenty of life and muscle to stick around. One who
is not easily pushed about by those bullish creatures. He’s
enjoying fanning his own raging fire.
The bear takes full control. Suddenly, most portfolios start heading
south. Many attempted rallies fade faster than my campfire.
Fears, emotions and losses rule the investment landscape. In addition,
the bear is slow to show vital signs of hibernation.
It’s essential to have an investment strategy at times like
this. Along with the patience to stick with it.
Asset mix decisions are by far the biggest influence on portfolios.
How much is invested in stocks, bonds and cash instruments, explains
on average 94% of the contribution to total returns.
Successful investing is not about what’s hot today, the coming
week, the next quarter or the next year. It’s about what investors
would like to own five years from now.
Investors, who need to cash in before a five-year horizon, should
stay clear of stock markets. The mauling inflicted by this stubborn
bear market has driven that point home.
Now that investors live longer, it’s also become a bigger
challenge to provide retirement income. Some years, investors just
can’t squeeze any gains out of anything they touch.
It brings new meaning to investing being a marathon, not a 100-yard
sprint. Especially, for women investors who live longer than men.
Now, back to my campfires. Thankfully, the rest of the trip turned
back into a roaring success. I regained my campfire competency.
Roasted marshmallows once again became popular.
As for the other matter, investors ought not to let their portfolios
vanish in smoke. Asset mix is a big key.
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