Prepare For A Market Crash!

I Can’t Believe I’m Saying It, But Here It Goes:

The Market Will Be Crashing Soon—Prepare!

(This is a MUST READ to protect your future)

Most of you know me as the common sense investing and financial planning coach who is there revealing the ‘crooks of Wall Street’ and the other con games that are perpetrated by the investment industry and financial sales people.  These games are purely designed to play on irrational investing decisions.  What most of you hear me say is, do the opposite of what everyone else is doing!  If they are fleeing real estate, get in.  If everyone is buying Gold—Sell It!  With that said, some of you are reading this email for the first time because the headline has drawn you in and it is playing on your fears.  Kind of like if I posted a link with ‘See Tiger Woods & the secret video of Tiger and his girlfriend.’  My guess is many of you would view that because the internal instincts, for whatever reason, tell us we must be involved in the salacious story.

So is the market getting ready to crash and should I get out?  The answer is no one knows and that wasn’t my point.  My point of the headline was to draw readers in who haven’t read my postings, viewed my videos or listened to the radio show and the common sense, no BS approach we use in guiding people to the truth of investing and financial success.  So read on and see the kind of dumb things we do as investors and what you need to realize is happening right now.

For one, since March 1^st 2009 the market (most people talk about the SP 500 which in only Large US companies) is up over 57%. But remember—the first quarter it was down the worst ever (-25%) and after the brutal year of 2008 (-38%) many people had called it quits and exited the market.  So what happened?  Most investors and their financial salespeople suggested they leave the market (FEAR) and today over $3.3 Trillion sits in money market accounts getting a paltry .04% rate of return.  To complicate matters, we are bombarded with financial ads from publications and on the news along with calls from our financial salespeople about safety and security in bonds.  In fact, since March 1, 2009 over $330 Billion has gone into corporate bonds while $28 Billion exited the SP 500.   Investor behavior and poor advisor advice leads to continuous mistakes in investing.

What are investors doing?  Heading towards what “FEELS GOOD.”  Take a few minutes and go to www.financialcoachshow.com and learn about bonds and bond funds.  Most are long term corporate (coming due in 15 to 30 years) and although they sound good right now paying 5-7%, what will happen as interest rates rise in the future?  The bonds will lose value and if you have to sell them, you will take a big loss.  Remember a great company called Hartford Insurance?  Their bonds coming due in 20 years are selling at a 16% loss even though they are paying an interest rate of over 6%.  Why?  Company risk.

So, what else has happened since March 1?  This year Emerging Countries are up over 114% since March.  Commodities are up over 40%.  Large International is up almost 80%.  Small companies US & International are up nearly 75%.   This is great!  The chart below shows the indexes for the categories: IEI/US 3-7yr Term Treasury, GSG/Commodity Index; EFA/Large International; VEMIX/Emerging Markets (China, India etc); GSPC/SP500 Large US.

SO THIS IS GREAT NEWS RIGHT?

Yes and No.  I know I sound like a politician but believe me, I know the ‘CONS’ that go on in the investment world and so many of you have had money sitting on the sidelines after jumping out of the market—And financial salespeople want that money!  Some of you have bought some corporate bonds when you received your broker’s phone call or met with your investment salesperson for ‘A Review/Sales Opportunity.’  Others of you have been tempted to buy Gold since every commercial you hear is about Gold.  What I want you to beware of is this: the financial salespeople (you may call them advisors) will now start telling you about how well this and that fund have done lately.  The managers are genius!  “They know how to invest your money and what is happening in the market”, you will hear.  BEWARE AND STAY AWAY!  It’s the recent run stupid (to borrow a phrase from Bill Clinton)—not a manager’s great sense and ability.

So the phone calls now will go like this… “Hi Mary, listen this is Tom your advisor and I’ve been watching the markets and your accounts and all signs suggest the markets are recovering and we need to get back in.   One of the funds our firm has been using is (name any fund) and we’ve been watching these guys and they really know what is happening.  In fact, they are up over 60% this year.  And while that is in no way what we can expect going forward, we can expect they’ll do ‘BETTER’ than the market because their past performance and analysis is great.  I know your fears and what happened before but we will also be watching it.”

Now here is what is really being said in truthful terms. “Hi Mary, you’ve got a lot of cash in your account because when I suggested that you sell out (because I had no clue what to tell you), I knew you’d eventually have to get back in when things turned around and I had good news to tell you.  I really need to make my mortgage payment this month and my brokerage firm is adding a special year-end bonus if I can sell 2 million dollars worth of funds from (Putnam, Federated, you name it).  These things are doing incredible and good times are here again (at least for me) so we need to get in.  Did you hear the CBS News report that the ‘Recession is Over?’  I may also suggest some bonds because I know you’ll like hearing about safety and our firm just bought the bonds from some poor son of a gun who got scared and sold out.  I know we told the guy to sell the bond and get into the market so he sold it for a low price and we are ‘marketing it up’ and telling you good things so you’ll buy it…but that’s the way the game works.  Don’t shoot me—I am either too blind to see what the industry is doing to harm investors that I keep working here at the firm or they pay me so much money I can’t afford to leave.  Of course, Merrill Lynch just offered me a 330% bonus on my last 12 months production so I may be moving there, but I’ll have some great reasons for you to move over there with me.”

So What Do I Do?

Get educated and understand what you are doing and why.  Learn that we NEVER know what will happen with the market so we must instead concentrate on what we can control:

1. Costs (our portfolios of index and ETFs along with our management fees are ½ the cost of mutual funds—not including sales commissions you pay, etc.)
2. Asset Allocation:  Most investors are only in Large US and Large International.  A lot of ‘stuff’ on your statement is NOT asset allocation and diversification.  Various asset classes behave differently and are needed in a portfolio.
3. Have a Plan:  If you are retiring in 8 years or are in retirement, get my “6 Pitfalls of Retirement Planning” CD and learn about my trademark pending ‘Asset Devotion Strategy’ that designs income for different times and risk tolerances in your life.
4. Stop Chasing Returns:  It’s sure to kill your investing experience.  Dalbar Studies show that in the last 20 years the SP 500 has returned over 9.6% while investors using mutual funds have only earned less than 4%.  Why?  Fees and investor/advisor behavior.
5. Rebalance. You know, buy low sell high.  Problem is, most people buy high and sell low.  With a Predetermined Rebalancing Program such as the one we use, you automatically sell winners and buy the poorest performing asset class.   Keep your portfolio as you designed it and when one category does well and increases, take the winners off the table to keep your portfolio constant.
6. DO NOT do business with ANY BROKERAGE FIRM.  I can’t say it any clearer and once you understand that brokerage firms employ people to sell their products and not to advise you.  They are an enemy, not a friend.  Buy the former head of the SEC, Arthur Levitt’s book, “Take on the Street” and learn the truth.   Also ask this question, “Why would brokerage firms be fighting the fiduciary standard of care which says you must put the consumer first if they are really looking out for you?” Read the interesting Wall Street Journal Article.

http://online.wsj.com/article/SB123819596242261401.html#articleTabs%3Darticle

Finally, request my “7 Deadly Investor Traps” CD that will help educate you and direct your investment decisions.  Stop worrying.  Remember, your ultimate goal is to have an investment plan that works for you and gives you peace of mind.