An Overview of the Market: Thoughts For Today's Investors

When J.P. Morgan was asked what he thought the market would do, in his usual haughty manner, he snapped back, “It will fluctuate.”*
When this answer is placed with the recent stock market as a backdrop, you realize that never a deeper truth has been spoken concerning the equity markets.
Although no two major market events are ever the same, they sometimes possess some similar characteristics from which we can hope to learn.
This is because underlying this answer is the realization that the markets are generally cyclical. If we can understand this simple truth; that markets go up and that markets comes down, we would understand why panicking when the stock market retreats has historically never been such a good idea.
The real issue in bear markets is that when the market is down, many times it feels as if it will be down forever. However, no matter how bad a market feels at its lowest point, it has historically recovered creating wealth for those who did not panic out of their well-planned investments.
A good example of this was back in 1979, when Business Week ran a cover story on "The Death of Equities." This magazine cover and article was published on August 13, 1979 and was on the very door step of the beginning of one of the best bull markets in the history of equities. In this article, Business Week suggested, "The death of equities looks like an almost permanent condition." The next year, in 1980, the S&P 500 was up 32.5% and the rest of the 1980s and 1990s are now historic in terms of market returns.
If history provides any implied qualities, one of the principal lessons is that if you are an investor with equity positions, odds are you should probably stay the course; otherwise, you likely may miss the upswing in the market that may potentially occur after the bear market. You need look no further than the last bear market which ended in 2002, at which time we saw a 28.7% return for the S&P in 2003.
The question is what do you do now? Particularly in this current market and with the volatility and uncertainty that surrounds it. No one has the crystal ball that will tell you exactly what to do or can predict its outcome. We believe that the best thing you can do is use the common sense wisdom that we have learned from other markets we have seen that possess some similar characteristics to the one we are in now. Stay focused, do not try to time the bottom of the market, stay diversified and understand the long-term view.
Historically, all bear markets eventually end. Although no one knows exactly when, this bear market should end too. When it does, it should display the relatively strong characteristics that the equity market has provided in the past. We do not believe that you should put yourself in a position of watching that from the sidelines.
According to the Stock Trader's Almanac, the last 10 bear markets have lasted, on average, 369 days. The most recent bear market which began in October 2007 is approaching that average number of days, although no one can accurately predict when this current bear market will end.
In difficult times like this, we believe it's important to invest with your head and not based on emotion. Stay the course and finally, remember that many times in the past, the bull market typically began when things looked their bleakest.

HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?

Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently, one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits. This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.