Financial Planning Services Offered Through Securities America Advisors, Inc.

Bear Market Warning

By Travis Allen, Certified Financial Planner

It’s official, we’re in a bear market. Defined as a decline of 20% or more, a bear market in US equities strikes fear in the heart of even seasoned investors. It is during times like these that investment discipline is called for, and the temptation to behave irrationally can be high. Further complicating matters is that this bear might be different, and bigger than normal. Here’s why:

Instability in the Credit Markets
Credit markets have been dramatically affected by the global credit crisis spawned by the subprime meltdown. With institutional investors now less willing to lend money, credit is now more difficult for companies to obtain, making overall economic growth more difficult. Additional
ly, mortgage lending has been significantly curtailed and residential buyers are finding their financing options are becoming increasingly limited.

Residential Real Estate Prices in Rapid Decline
This is likely not new news to anyone, but the effects of widespread price declines on principal and secondary residences (most major residential real estate markets are down 25%+) are causing many to consider short sales and other drastic measures as mortgage balances begin to exceed home prices. Concurrently, the psychological effect of diminishing net worth is causing homeowners to rein in discretionary spending, which further drags down economic activity.

Recession is on the horizon
Although we are not yet officially in a recession, there are very few economists that would disagree that we are quickly entering recessionary territory. With this sort of gloom on the horizon, many domestic companies are looking at downsizing and restructuring as the fastest ways to trim the fat in the face of lower expected revenue. This means potentially less jobs, which compound the effects of unstable credit markets and homeowner uncertainty.

So what is an investor to do?

Re-Evaluate your Plan
Every market gyration shouldn’t be a call to completely overhaul your investments, but this particular time around might call for added measures of safety. Many investors frequently mis-calculate the risk they are comfortable taking. Surprisingly, it is not always the case that investors overestimate their appetite for risk – oftentimes investors misjudge their investment time horizon and consequently underestimate the risk that they should be comfortable with. As a Certified Financial Planner, I don’t think I can even count the number of times that I’ve heard investors say, “If I had only known this 20 years ago…” The point is that on balance the stock and bond markets historically appreciate, regardless of the short-term cataclysms that are constantly threatening.

So take a moment to sit down with a professional and re-evaluate your portfolio and make sure that your investment strategy isn’t too aggressive for the current market and your long term plans, and also that it is not too conservative or requiring constant maintenance to effectively see you through a successful retirement.

Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Investing in limited sectors may increase the overall volatility of your portfolio.

Travis Allen is a Certified Financial Planner™ and the President of the Wealth Strategies Group, a wealth management firm located in Costa Mesa. Securities offered through Securities America, Inc, Member FINRA/SIPC, and Financial Planning and Investment Advisory Services offered through Securities America Advisors, Inc., an SEC Registered Investment Advisor, Travis Allen, Representative. To schedule an appointment with Travis Allen, call (714) 384-4144 or email tallen@wealthstrategiesgroup.net.

CNNMoney.com/S&P Case –Shiller Home Price Index