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financial advice

By Steve Conard

Common sense By Steve Conard, Compass Financial Services he year-long stock market decline culminating in the steep autumn nosedive has even the most seasoned investors rattled to the core. As investors have watched their savings seemingly evaporate into thin air, they have begun to question much of the conventional wisdom they have heard repeatedly over the years. I’ll take this opportunity to share my views on the following familiar advice espoused by financial writers and talking heads: • Buy and hold for the long term.The success of this strategy depends on what you buy and hold. Some investments work much better than others as longterm holdings, particularly during prolonged periods of flat or declining markets. Much of what takes place under the hood of an effective portfolio is not readily apparent by looking at the dollar value on any given day. • Stocks beat other investments over the long haul. This is always true, except when it isn’t. If you intend to hang your retirement hat on this old adage, make sure your definition of “long term” fits your financial situation. • Diversify your stock portfolio with bonds and cash.Why, if stocks will beat them anyway? Seriously, this is generally a good idea, but by no means loss-proof. Over the last year, the bond markets have been beaten up badly along with the stock market. Hiding out in low-rate cash equivalents like money markets has generated negative returns after inflation. Alternative investments including commercial real estate and hedged strategies are more readily available to individual investors today than ever before, and can add meaningful diversification benefits and the potential for improved returns to most portfolios.

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• Market timing strategies are futile. This has proven true every time it’s been studied, which is often. Now I’ll address the two most common questions I have been asked during the current market meltdown: • Should I get out of the market until things calm down? Having paid much higher prices to acquire many of the same shares you now want to sell dirt cheap, think hard before locking in losses today. Also decide ahead of time how much higher the market will need to go before it is “calm” enough to get back in. • With the market so bad, should I stop contributing to my 401(k)? Only if you don’t like buying when the merchandise goes on sale… and if it won’t bother you to pass up the “free money” from your employer’s match. While these types of questions are understandable, scary times, more than any other, call for rational decisions and the application of common sense. The questions people tend to ask in such times are usually the wrong ones. The right questions include: “What return on my investments do I need to reach my goals?” “How much do I need to save to reach my goals?” “How do I need to invest for long term success?” “How has the market downturn impacted my progress?” The answers to these questions differ depending on your particular circumstances, and if you can’t answer them definitively, I urge you to seek the guidance of a qualified financial planning professional. AL Steve Conard is a Certified Financial Planner with Compass Financial Services, a registered investment advisor with offices in West Des Moines and Adel. Securities offered through LPL Financial, member FINRA/SIPC.

www.iowalivingmagazines.com/adel

NOVEMBER | 2008

Adel Living 17


Adel Living Nov. 08