Some analysts saw this coming. Last fall, many of the large investment banks had borrowed far too much money in relation to their capital base. The slightest downturn in the economy and the price of single family homes would create a problem. This significant downturn created a disaster. Bear Stearns, Lehman, Merrill Lynch, Washington Mutual, Wachovia, Freddie Mac and Fannie Mae, all needed to seek a rescue package or sell their companies.

The government and the regulators did not respond as this borrowing imbalance gained great momentum. The lack of oversight allowed bankers to continue to risk stockholders' money in order to meet outlandish expectations and to reap huge compensation for the risk.
 
What is next?
The American economy, while bruised, fundamentally is strong, and will survive. The bailout signed by the President on Friday was necessary to get credit moving throughout the economy. Credit is like food for the human body; it is vital to life. 
 

Many financial institutions shunned these financial instruments and therefore avoided the economic storm. Most banks are sound and well capitalized.  Most insurance companies are very sound. The government wisely has increased the FDIC insurance to $250,000. Banks will make better loans and the consumer will take more responsibility for spending and credit. 
 
The next President will have little choice but to look at spending cuts and tax increases to keep the Federal budget somewhat in balance. It would be ill advised to engage in more massive spending when the annual deficit will be at record levels. 
 
All of these actions will cause a short-term recession while consumers retrench and personal balance sheets strengthen. We hope the government will do the same. 
 
What can you do?
Now is the time to continue investing in the market. A steady, regular plan of investments is critical to success. The stock market will increase again. Now is the time slowly to increase your diversification. For example, investing overseas can diversify your stock and bond portfolio; this adjustment should add protection from the problems of investing in a single economic market.
 
All of us are living longer and on average much healthier lives. Men living to 65 have a 49% chance to live to 86 and women who reach 65 have a 49% chance of living to 89. As a result, health care costs in retirement have never been higher. The average retiree will now need to spend $150,000 plus in retirement for health care costs not covered by government or private plans. You also need to consider saving more while adjusting your retirement until a later date. 
 
What HORAN can do for you?
At HORAN, our years of experience will guide you through these changes in your investments and savings for the challenges ahead. We can help you understand how much money you will need in retirement; we can determine if your investment allocations and savings patterns will achieve your goals. Our relationship requires open dialogue and an honest analysis of the facts.
 
We want you and your family to retire in a secure manner.  As always, I welcome you to contact me with any questions or concerns.