Samples of Archived Commentaries:
ALERT: September 15, 2008
Market Indicator turns Negative
Equity Allocation Target reduced to 0%-30%
My401kPro's Market Indicator has officially turned Negative as of this past Friday. For this reason, we are once again lowering the Equity Allocation Target from the second-lowest recommended range of 10%-40%, down to the lowest range of 0%-30%.
Disciplined followers of My401kPro's investment guidance will recognize that, despite the Market Indicator being Positive for the last 6 weeks, we have continued to recommend a very low level of investment in equity funds. Because of its remarkable track record, it is rare for us to second guess the signals generated by the Market Indicator. On occasion, however, our decades of investment experience will cause us to question the veracity of a signal, or at the least, place further burden of proof on the market to validate the signal. This was the case in early August when the Market Indicator turned Positive, yet we only raised the Equity Allocation Target slightly.
There were basically two reasons for this reaction. One was that several of the underlying indicators which comprise the Market Indicator only slightly budged into Positive territory. Typically, a Positive turn in the Market Indicator that results in a strong rally will show strong upward moves in the underlying indicators. This was not the case. The second reason for our hesitance in recommending more investment to equity funds was the price action in many of the averages. They were not rallying to levels that they should have been given the Positive signal. This is an instance where we place a further burden on the market to prove that it is able to sustain a rally before committing more investment because, no matter what the Market Indicator says, if the price of an index is going down, you can't make money.
So why did we continue to recommend having any investment in equity funds above the minimum and why has the Market Indicator remained Positive? Well, despite the turmoil in the Wall Street institutions and continuous flow of dire headlines, much of the market has been doing OK. In fact, many of the small cap averages, as we have mentioned over the past month and a half, are actually up since the Market Indicator turned Positive in early August. So again, despite the turmoil in segments of the financial markets over the last 6 weeks, it was still possible to make money. That is evidence of the importance of following My401kPro's Fund Rankings so that you know which funds to be invested in as well as how much to be invested.
What now? As a My401kPro subscriber, it's simple: just continue to follow our guidance as always. You have hired us to analyze the markets and guide you as to how to invest your portfolio. Right now, that means having anywhere from 0% to 30% of your portfolio invested in equity funds. It also means you can relax because you have a professional with an effective methodology watching out for your investment well-being. If you have followed our guidance, your retirement account is in good shape. That is why you hired us. Many other "professionals" are telling their clients to relax today as well. Unfortunately, that is near impossible when your professional espouses the buy-and-hold approach and your retirement account is and has been 100% invested in equities.
As always, we will continue to monitor the markets and Alert you promptly should our recommendations change. These types of market events often cause the type of panic that leads to a bottom in the market and eventually a great buying opportunity. Also interesting is the fact the Market Indicator just barely budged into Negative territory much like it barely turned Positive in August. Whether or not that means this Negative signal will be quickly reversed, we don't know. Another negative is that, unlike the lows in March and July, the market is not yet at the extremes that would signal an imminent reversal. That could change quickly starting with today's action, but it could go either way right now.
You invest when the odds are stacked in your favor, i.e., the reward potential outweighs the risk, and there are just too many uncertainties to say that is the case right now. Keep in mind that we often say the most important thing in successful investing is to avoid the big loss. That is what we are helping you do right now and when the markets emerge from this debacle, your account will be in prime position to start growing again.