Many of us are familiar with the expression: No Pain, No Gain. It can usually be heard wherever people are exercising but lately it’s been trickling into personal finance discussions as some fabled Wall St. firms prepare to face painful transformations.
Hardly a day goes by when someone does not ask me something like: Where’s the stock market headed? When are things going to get better?
The stock market’s been extremely volatile. Prices for such commodities as oil, natural gas, gold and agricultural products have been coming down from their Rocky Mountain highs and interest rates are relatively low but recently these prices have been changing. Real estate has been a wild card. There’s a large inventory of homes for sale yet in some areas, real estate is not lasting long on the market. It seems like the only thing we can predict with any certainty is unpredictability.
Unfortunately “pain” can be a part of long-term investing. In fact, one prominent Wall St. economist, Dr. Robert J. Froehlich, vice chairman of DWS Investments and Chairman of the Investor Strategy Committee recently created a “House of Pain Index.” Dr. Bob, as he is fondly called notes we can “really get a feel for how much pain there is on Main St. by measuring the pain in or portfolios and pocketbooks.” In addition to the stock market, Dr. Bob’s analysis also considers housing values, hence the name: House of Pain.
Dr. Bob theorizes that 2008 marks the first year where both the housing and stock markets have been negative. “If it feels like you’ve never felt this much pain before that’s because you have never felt this much pain before,” he writes. Dr. Bob estimates that we are at the worst level in 33 years – 1975 if you’re doing the math.
Where Do We Go From Here?
The truth is no one knows when our economy will rebound. As mentioned at the start of this letter, we’ve been receiving a lot of conflicting data. Our economy has suffered from some very poor missteps such as over-borrowing by the consumer and by banks making too many risky loans. Consumer spending has understandably slowed hurting retailers. Similarly, unemployment has crossed 9% on a national level and people are saving more because their economic-confidence level is down.
Eventually it will sort out and private enterprise, perhaps with some meaningful help from the government in the form of tax cuts and continued low interest rates, will lead the way. In the meantime, what’s the individual investor to do?
Keep your long-term perspective. Stay invested in the stocks of high-quality companies and mutual funds. There are a lot of companies with good amounts of cash on their books and promising products in the pipeline. If you’re concerned about your financial future, make an appointment with an independent financial adviser to discuss some of the many new products that have become available to help you weather such storms.
In the meantime, hang in there, the pain will end one day – it always has!
Paul Strebel is a certified financial planner and certified public accountant with The Strebel Planning Group in Ithaca, NY.
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Paul Strebel My extensive background includes experience working for a “big eight” accounting firm, two large brokerage firms, two large insurance companies, as well as tax manager for a large international manufacturing corporation. Full Profile & Contact Information...
