Nevada Retirement Planners

These may not be the best of times for most Americans, but for Cindy Goldstein, “business is good.” She’s a financial planner.

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As I wrote in a column Friday, for baby boomers, the Crash of 2008 may prove to be as traumatic as the 1929 Crash was for our parents or grandparents. I'm not saying 2008 is as bad as 1929 or that it necessarily follows that we're in for a comparable depression. But since most of us weren't around for 1929-1932, for us, 2008 has been comparably traumatic.

An email I posted earlier this week from a reader sums up the despondency some are feeling. This comes from a reader named John, who is 55 and lives in Toronto. True, I myself am a 55-year old Torontonian named Jon, but it was not me. Here's the mildly edited email, italicized below. I was granted permission to use it as long as I did not include his last name:

The subject line was How could I have been so stupid?

 I feel tremendous shame for losing so much of my retirement savings in the stock market. I am sure I am not alone, having put myself through school at night, raising a family, working long hours to pay off my mortgage and live a modest life style while saving a little every year for retirement. Now 55 and planning for so long  to retire next year I foolishly believed that a properly diversified and conservative investment portfolio would provide for my wife and I during our senior years. I can barely look at myself in the mirror now and it breaks my heart that I have so carelessly jeopardized the future well being of the ones I love. I am ashamed.
 
Thanks for letting me get this off my chest.
 
As he says, he's not alone. I'm sure many others feel equally despondent but are less eloquent about it, or not inclined to share their thoughts with the national press. However, I don't think "John" should be so hard on himself. If he wants to blame someone, start with Wall Street: as in this piece, How Wall Street Wrecked Your Retirement.

If you're feeling like John, try and get hold of a presentation by Odlum Brown director of investment research Murray Leith, who we've blogged about previously. When I read Leith's The Future: It's All About Banking earlier this week, I felt a little more positive about things. Leith himself admits he was feeling a little depressed, just like reader John. I'm not sure the whole text is available at the firm's web site but close to it is this essay, entitled The War to Restore Confidence Will Be Won.

Leith includes a commonly cited chart, The Cycle of Market Emotions, a version of which is below:

Leith believes the negative part of the cycle was compressed two weeks ago, when "we went through Fear, Desperation, Panic, Capitulation and Despondency all in one week."

Leith stresses that investors are guaranteed to lose money if they panic and sell. "If you are patient, I am absolutely convinced that shares of high quality companies will recover once investors realize that there will be an economic recovery."  Leith doesn't sugar coat what has already happened: "There is no doubt that the magnitude of the credit crisis is unprecedented, but so too is the scope and speed by which the authorities have moved to backstop the global banking system."

2008 may be stock-buying opportunity of a lifetime 

Leith says it's "quite likely that 2008 will go down in the history books as the stock market buying opportunity of a lifetime … Great companies are selling at fire sale prices because mutual funds and hedge funds are dumping stocks to meet redemption orders. As is often the case, the quality companies are being sold alongside the poor since that is where the liquidity lies. Once the selling abates, high quality stocks will rise above the rest."

A key point he makes is that because the stock market is a leading indicator, "stocks will rally well before the economy hits bottom."

So what kind of stocks and where?  Odlum Brown suggests Canadians take advantage of the still relatively strong Canadian dollar to "diversify outside of the cyclically geared Canadian market." Resource stocks are called "late-cycle" stocks because it will be a long time before they lead the market ahead. The U.S. is two years ahead of the rest of the world in the economic cycle and therefore the U.S. will lead the economy. "Counterintuitively, world-class U.S. companies are your best defense (the best value)."

American large caps may lead the recovery 

Since mid-July, the U.S. stock market had done much better than the Canadian stock market, Leith says. Odlum Brown's Model Portfolio is "hugely overweight" the more stable Consumer and Health Care sectors while it has only one third the market's exposure to resource stocks. It's "modestly underweight" financials and 40% is invested outside Canada, primarily in large U.S. multnationals.

While it has reduced exposure to Canadian banks and insurance companies by 25%, Odlum Brown is "not worried about the long-term health of these businesses… We continue to believe the dividends are safe and think it would be a mistake to make a wholesale shift out of the sector." It's emphasizing quality among Canadian stocks, and owns most of the big banks, Manulife Financial, Fortis, Encana, Sun Life, Shoppers Drug Mart, CN, Canadian Pacific and Tim Hortons.

In the U.S., it's emphasized "big, strong and great valuations" — Coca Cola, Colgate, Johnson & Johnson, Wal-Mart, Microsoft, UPS, Dell, Starbucks and 3M. Global stocks include Nokia and Novartis.

Leith concludes by saying most investors will miss the opportunity to buy shares of such great companies because they are waiting for a better opportunity. "Most will wait all the way down and all the way back up until the opportunity is gone."

Let's hope he's right. I'm inclined to believe he is but recognize this could be wishful thinking or yet another example of cognitive dissonance. In the interests of balance, I feel compelled to add one counteropinion, from an author whose past work shows how hazardous predicting the future can be.  

–62– 

Source The Wealthy Boomer : Retirement

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