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Investing at Low Tide


The nation has faced economic uncertainty on numerous occasions, but this time, it’s different. A once-in-a-generation confluence of events has led to an extreme contraction of the global economy at a time when a record number of people are in or approaching retirement

The nation has faced economic uncertainty on numerous occasions, but this time, it’s different. A once-in-a-generation confluence of events has led to an extreme contraction of the global economy at a time when a record number of people are in or approaching retirement.

One way to view today’s market is to think about the tides. A secular bull market could be likened to a rising tide. As a rising tide approaches the shore line, investors don’t need to be highly accurate as long as they can get close enough to the water, which will eventually come in and lift all boats.

In a secular bear market, the financial tide is out and continues to recede. Though waves of prosperity continue to hit the shore — comparable to the potential to still make money in the markets – the trend has been fewer opportunities to launch investment boats. If you try to put your boat in at the wrong time or in the wrong place, you could be stranded on dry land.

So how can investors avoid being stranded? How can they set a course without running aground in the recessed waters of the economy?

Though there isn’t any one-size-fits-all prescription for the investing ills of all investors, there are common factors that they should consider when deliberating over how to proceed in the current market. Any tactical move you make should consider the safety of your income stream, how much you have saved, and your life goals.

Decisions should be framed by your life stage. There’s no question that, for those in the 20- to 30-year-old age bracket, the down market is a buying opportunity. Retirement is decades away and portfolios have plenty of time to rebound. What’s more, plummeting home values, coinciding with low interest rates, have created a perfect storm of opportunity for qualified first-time homebuyers.

With less time on their side, physicians in their 40s and early 50s need to adopt the discipline of buying selectively in the downturn and then selling selectively in the eventual upturn. Physicians approaching retirement with substantial nest eggs might consider managing them more conservatively than the new dollars they invest.

This conservative approach to existing assets is designed to protect against further losses, which are more of a threat to those approaching retirement. According to a survey published by the Employee Benefit Research Institute, “The Impact of the Recent Financial Crisis on 401(k) Account Balances,” 401(k) investors with more than $200,000 in account balances had an average loss of more than 25% from January 1, 2008 to January 20, 2009. For some physicians, such losses may mean delaying retirement. For this age group, the recession and increasing longevity require a shift in their focus from return on investment to reliability of income (the new ROI).

Physicians who are already retired should keep a sharp eye on portfolio withdrawals. Although 4% a year has been the accepted standard safe withdrawal rate, it may be prudent to withdraw less in years of substantial market declines. What’s more, keep in mind that this year, Required Minimum Distributions (RMDs) from IRAs and employer-sponsored retirement plans have been suspended to alleviate the pain of making withdrawals from accounts that likely posted losses.

The challenges of investing in this volatile market environment are complicated by the fact that there is so much money on the sidelines. The S&P 500 was worth $7.2 trillion as of the end of January. At the beginning of this year, an estimated $8.9 trillion of cash was invested in safety-oriented investments, such as money market funds, not in the stock market.

When those assets are eventually pumped back into the market - when the market tide comes in again - the reaction could be swift and extreme. As the market rebounds, the most successful investors will be those who, having integrated their intellectual and emotional concerns, embrace volatility in the right way. That is, while others look for a combination of the right policy decisions or tax structure to galvanize the stock market, investors should look inwardly to their personal economies to determine what level of investment might best suit their age brackets, goals, and risk tolerances.

In the coming months, as we’ll likely continue to see a tough investing environment, this self-knowledge will help you captain your investment vessel with greater confidence.

Jim Coleman is founder of the Coleman Financial Advisory Group in Waterbury, Conn. ( and recently authored the book Educated Investing: Your Guide to Surviving and Thriving in the Fast-Paced Global Markets of the 21st Century.

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