With the markets in such fluctuations, we have been hearing a number of questions regarding this economic downturn. Below are a few frequently asked questions and the answers as best described by the financial advisors of World Trend Financial.
Should I take my money out of the market now?
In most cases now is not the time to make an emotional decision. As a firm we expect times like this when we recommend our funds and therefore our stance does not change due to short-term market volatility. Clients that need their money in less than five years would not be exposed to this market correction as we do not invest that money into equities.
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The U.S. Treasury Temporary Guarantee Program provides a guarantee to participating money market mutual fund shareholders based on the number of shares invested in the fund at the close of business on September 19, 2008.
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Any increase in the number of shares an investor holds after the close of business on September 19, 2008, will not be guaranteed.
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If a customer closes his/her account with a fund or broker-dealer, any future investment in the fund will not be guaranteed.
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If the number of shares an investor holds fluctuates over the period, the investor will be covered for either the number of shares held as of the close of business on September 19, 2008, or the current amount, whichever is less.
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The Program expires on December 18, 2008, unless extended by the United States Treasury.
Who are going to be the winners when the dust settles?
As a firm we do not make short-term market predictions on individual securities. Instead, we trust the managers of our mutual funds to stick to their stated objective. While some of those objectives may be temporarily out of favor, markets tend to move in cycles. Remaining exposed to a lower performing asset class may be temporarily painful, but it can reward those that have time to wait for the recovery.
How is the presidential election going to affect my portfolio?
Both political parties have an interest in suggesting that their party will be the one to get the US economy back on its feet. However, there is no strong correlation relating positive or negative performance to a political party. The economy moves in cycles; neither party has proven adept at leveling out these cycles.
Goldman Sachs and Morgan Stanley were the last 2 independent investment banks on Wall Street. They received approval from the Federal Reserve to change their status to a Bank Holding Company. What does this mean?
By becoming commercial banks, the two companies avoided the fate of Bear Sterns and Lehman Brothers. This gives them broader access to borrow federal money and the ability to build a stable base of deposits. But it also comes with closer regulatory oversight, likely limiting its ability to generate the kinds of sky high profits they attained in previous years.
Recent media stated IPERS lost $1 billion. How does this affect all IPERS members?
Donna Mueller, CEO of IPERS has stated that all member benefits are secure, regardless of the current turmoil in the stock market. Your benefits are set by a formula they use which is not affected by the stock market. They will continue to pay out all the benefits they have promised. We suspect this will remain true despite recent set back. Their preliminary estimate of losses due to Lehman Brothers is only two-tenths of one percent. The members benefit is not contingent on the investment return on the day you retire. In a defined benefit plan such as IPERS, the investment gains and loses are shared by everyone in the pool.
What effect has the recent events had on Money Markets?
As of this writing, only one money market has fallen below the $1.00 threshold due to the recent crisis. This was The Primary Fund money market managed by The Reserve Funds. No clients of World Trend are invested in this specific money market.
Money markets depend on liquidity. The recent crisis has dried up the market for much of the liquid investments money markets need to function, such as short-term government debt and highly rated commercial paper (corporate bonds). These investments must have an average maturity of less than 90 days to be eligible money market investments.
While most money markets would have remained functional and generally unaffected by the crisis, the United States government, along with governments around the world, acted to assure that money markets remained healthy. These governments pumped billions of dollars of liquidity into short-term markets to aid the inflow of available cash to money markets worldwide. They also instituted the Treasury Money Market Guarantee Program.
Money markets are considered one of the safest places to hold money and still receive a competitive yield. Even with the recent occurrences, money markets are a low-risk investment.
Are Certificates of Deposit (CDs) a safe investment right now?CDs should still be considered a safe investment. CDs are bought through individual banks. While there are concerns of certain banks becoming insolvent, the money held in that bank is FDIC insured up to $250,000.
This brings up an important point regarding CDs. If a large amount of money is to be invested in CDs, it is vital to purchase them at different banks to take advantage of the FDIC insurance.
For example: Joe Client has $550,000 to invest and has chosen CDs for the investment vehicle. Mr. Client would invest $250,000 in a CD at bank A, $250,000 at bank B, and the remaining $50,000 at bank C. This assures all $550,000 of Mr. Client’s investment is insured by the FDIC.
How does World Trend combat this market volatility for my specific portfolio?
At World Trend, we evaluate each investors needs on an individual basis. After determining your investment goals and attitudes, and depending on your investing timeline, we formulate the appropriate mix of assets to build your Core Portfolio. There are no predetermined “cookie cutter” portfolios in which we invest your assets; everyone’s circumstances are different, so it is unsuitable to assume the same portfolio would be an appropriate investment for multiple investors.
Our Core Portfolio is comprised of a diverse mix of both Equity and Bond Funds. After determining your needs, we formulate a portfolio designed to outperform the benchmark index while doing so with less volatility. This allows your portfolio to participate in market growth, while limiting the downside risk.
The strict guidelines we hold our funds to assures we practice due diligence in our evaluation. If the funds fall out of line, it is thoroughly reviewed. If we find fundamental flaws or believe the fund’s management is moving away from our preferred style, we will replace them with a more appropriate investment. This strategy has allowed the funds within our core portfolio to consistently outperform their comparative peer group.
Our personalized investment strategy is what sets us apart from our competitors. At World Trend, we value the individuality of our clients and believe it is our responsibility to give them the personalized service they deserve.
What is the best advice you can give me in times like these?
Stay calm and don’t panic! With the media’s constant focus on the financial crisis, the ability to remain calm is becoming increasingly difficult. However, the worst thing you could do right now is leap into a rash decision, potentially damaging your long-term financial picture.
Your financial well-being is too important to jeopardize with unplanned decisions based on emotional responses to the environment. This is obviously easier said than done, but your advisor can help. If you have immediate concerns, please contact us to discuss your personal situation and appropriate strategies for you.