Market Declines

In light of last week's tragedies, how does one write an article about wealth building? The uncertainty in peoples' voices reflects true fear. I hope that in some small way I can try to allay some of your fears about your financial future.

History is our guide as we try to understand what will happen to our economy in the coming months. History says that the economy, like the American people, is very resilient. Long-term investors know this-so they often see opportunity in market declines.

When the evening news contains a graphic of a red arrow pointing down, should that make you nervous? Only if you need money soon and can get it only by selling stocks. Otherwise, you can look at these downturns with more optimism than is normally reflected on the evening news.

For starters, think about the asset allocation in your investment portfolio and your qualified retirement plan. Revisit your targeted allocation of stocks, bonds, and other investments in your portfolio and make some adjustments in keeping with the new economic climate. You may find during bear markets that by shifting more money into stocks, you can take advantage of lower prices. If you've been hoarding some cash for a particularly good bargain or a stock that's been on your wish list for a while, this may be a good time to add to your stock portfolio.

Warren Buffett, Berkshire Hathaway Chairman and one of the most successful investors of all time, offered a long-term perspective on market fluctuations in his company's 1997 annual report, "If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.

"This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers would much prefer sinking prices."

The objective, of course, is "Buy low, sell high." It's been said that market declines "return stocks to their rightful owners"-that is, to those who buy low.

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