With a banking crisis roiling Europe, whose financial control mechanisms are apparently suffering from a higher degree of political influence than we have here (!), world markets are again on the defensive, led by European banks and nearly every other financial institution around the world. Those who are working hard to destroy the independence of our own central bank would do well to compare Europe’s apparent descent into a new systemic meltdown with the relative stability of the financial system here. By wisely subjecting US banks to stricter capital requirements and with a strong Central bank, it appears the US may be able to ride out this new storm in relatively good shape, although only time will tell. I am not in agreement with those who opposed the extraordinary measures taken by Treasury and the Federal Reserve during the 2008 panic. Moderates of both parties prevailed in stabilizing our key financial institutions, as it was better to bail out these distasteful players than to let everyone in the nation suffer a new Great Depression.
Three years ago as the system was heading into crisis, we held the largest cash balance ever for our clients, along with a generous allocation to bonds. When the fan was hit, our folks fared relatively well. Only three clients panicked and bailed out of the financial markets altogether, against my advice. For those who stayed, our conservative stance meant their losses on paper were less than half that of the equities markets, and we were able to then use the cash reserves to scoop up bargains in high quality bonds, preferred stocks (great yields!) and common equities.
Recently, Bloomberg carried a story about how people who exited the market in October 2011 have fared with their 401K’s as opposed to those who rode out the storm. You can read the entire article at the link below. However to summarize the findings, those who exited stocks never to return have seen their accounts recover all of 2% since October 2008. Those who stayed put are up more than 50%. Our own client experience, while slightly different, reflects a similar result. Here’s the link
http://www.bloomberg.com/news/2011-08-18/selling-burns-401-k-investors-who-dumped-stocks-fidelity-says.html
If you are wondering how we are handling the current panic for our discretionary client portfolios, take a look at recent blog posts below, better still, give me a call to discuss your particular situation, in confidence and without obligation.
Gary Miller, CFP
