My conversations with clients in the past two weeks have been in the nature of  encouragement to stay the course.  Only make adjustments where truly necessary.  Let’s look at the big financial occurrences over the past month.  Fannie Mae and Freddie Mac have been taken over by the Federal Government, Lehman has gone into bankruptcy and is being sold off in pieces, Merrill Lynch was bought and taken over by Bank of America, AIG the world’s largest insurance company was taken over by the Federal Government and Hurricane Ike has wreaked havoc on the Gulf Coast leaving homes and lives wrecked.  If you are a client of AVR or advice4retirement.com, you more than likely live n the Houston area and have been affected by Hurricane Ike as well.  Thanks to my Husky generator, I am able to communicate the last occurrences to you.  Its five day after landfall of Hurricane Ike and I still have no electricity.  I realize a question to consider is: when will you able to connect and read this information?  Nonetheless when you are able to get power and connect, you will find a little solace in this information.

I may sound like a broken record, but my message and advice to clients hasn’t changed.  This is what I have been preaching from the beginning of my practice 20 years ago.  Create an allocation based on your financial needs.  Make changes in your plan as your circumstances change.    The reason for the problems we are seeing in the economy is the same problem we faced thirteen months ago.  Very large volumes of bad loans in the mortgage industry have defaulted.  Companies like Merrill Lynch and Lehman sponsored the loans.  Fannie Mae and Freddie Mac backed the loans and re-sold them.  Companies like AIG insured them.  Like it or not, we live in a society where the woes of one economic sector will affect the financial health of an unrelated sector. On Wednesday, September 17, 2008 the Dow Jones Industrial’s Average fell 449.36 points or -4.06%.  This is an index of the thirty largest companies in our nation.  Only five of those companies could be considered financial services companies.  But companies like Coca Cola and McDonalds, which are in the index too, lost value as well.  It defies logic for an unrelated investment to lose value, but who said that investing was logical?   I do see these as perfect reasons for diversification and creating a long term strategy.  If you want more information on strategies take a look at my 'summer 08' Investment Letter at www.advice4retirement.com .   

With all of the gyrations in the markets you may be wondering if you should do anything different with your investments.  For many investors the answer would be no.  But that does not mean live with your head in the sand.  Here is a short list of reasons to make changes in your current allocation:

1.       You may need to make changes if you don’t have a plan.  Protect yourself and make an investment plan.  Know what you want from the financial system rather than being a victim of the system.

2.       If you are over weighted in the financial services sector you may need to make changes.  If you are speculating, that’s OK, but that is not what our firm does.  We promote primarily conservative investment strategies.     

3.       If mutual funds (or variable annuities) you hold are too weighted in the stocks of distressed companies, AIG, Lehman, Fannie Mae and Freddie Mac, etc. you may want to make a change.  If you don’t know it’s time to look and educate yourself.

4.       You may need to make changes if you hold a money market with lower rated commercial paper.  Or if you have a lot in money markets you may need to diversify.  FYI, The Reserve, a New York money market manager announced Tuesday, September 16th that they have “busted the buck” by going below the $1 value due to short term holdings in distressed companies.  Quality in money market holdings matters.

 In my 'summer 08' Investment Letter, I stress the need for investing horizons of at least five years.  There is no way to be certain, but if we are near the bottom of a cycle, we may be another year away from recovery.  Your investment strategy should make allowances for long decreases in the market.  As always, I invite your questions.  Feel free to email me at van@advice4retirement.com