September 30, 2008 Investment Analysis

By now, you have probably heard enough bad news about the economy from the talking heads and the legions of ‘experts’ who are so willing to offer their opinion. Investment success is all about seeing the big picture despite the market’s noise. The daily financial media and the evening news are all about creating noise. Every blip on the Dow does not have a deep meaning nor will it predict a trend. It is impossible to analyze a daily event and state with any measurable degree of accuracy what the market will do in the future.

When the headlines are screaming doom, look at the numbers. We are no where near the “Great Depression”. In terms of our daily lives, the highways are still clogged with cars, high-end restaurants are full. Airlines are flying full airplanes. Unemployment is about 6% compared to 25% during the Great Depression. Per capita income adjusted for inflation is about five times what is was during the Great Depression. Food prices are still high and “Help Wanted” signs are posted in many stores windows here in S. FL. These are not indicators of the US economy being on the verge of the next Great Depression.

Financial securities like mutual funds have declined in value over the past 12 months. For long term investors, this creates opportunities to employ dollar cost averaging to buy more shares with the same dollar amount. Yesterday, September 29, 2008, the market experienced a 777+ drop closing at around 10,365. Scary in its own right but this is where the market was in mid July 2006. Today, the market recovered 485+ of yesterday's drop. This is trader fear and greed in full display and is the reason why simple dollar cost averaging is the best investment strategy. When will the market begin to trend upward? No one knows. But when it does, the mutual fund shares you purchase today will increase your net worth faster than the shares you purchased last year at this time.

The decline in mutual fund values has also created an opportunity for harvesting some tax write-offs. If you sell funds in a taxable account for less than you paid, you can subtract the loss from gains elsewhere in your portfolio and if you have more losses than gains, you can write-off up to $3,000 of the losses against ordinary income. This is known as a tax swap. In a tax swap you can sell a losing fund and reinvest the proceeds in another fund. The net effect is you may be able to save on taxes but stay fully invested so you’re ready for the rebound. Your portfolio will have the same net value because you do not remove money from the portfolio. We simply move money from one fund to another and write-off the loss. You should review this strategy with your tax planner.

I continue to be asked about the safety of fund money. Your investments are safe and insured. Mutual funds held at firms like Van Kampen are protected by the Investment Company Act of 1940. When you invest your money, it goes to a bank custodian. The fund managers directs the investments but never holds the securities. Should Van Kampen fail, which is extremely unlikely, your account with its full value would simply be transferred to another firm, like Fidelity or American, etc. If you have questions about the safety of your money, feel free to contact me or Van Kampen directly.

The best strategy right now is to continue to make bi-weekly or monthly deposits into your accounts. This lets you take advantage of dollar cost averaging which means a dollar invested today will buy more shares than a dollar did a year ago. No one, not your friends, not the talking heads, not your family or other self proclaimed “experts” can predict the market’s future. But you can rest assured, that the US economy will not collapse, the world will not end and at some point in the future the market will start trending upward and when it does, it will likely move to a new record high.

If you have friends or relatives who need the services of a professional financial representative please have them contact me. Know that I will provide them with the same high level of service and support I provide to you.Please feel free to contact me via email at david.snellen@ccfinvestments.com or by telephone at 954-302-3628 to discuss any question you have concerning investments, retirement or estate planning.

David Snellen
Registered Investment Representative
Capital Choice Investment Advisors, Inc.
954-302-3628