In an unwelcome encore to the worst calendar
year since 1931, stocks posted their worst
January ever. We continue to be faced with
an extraordinarily difficult market
environment, one that is testing our patience
We keep asking ourselves if diversification
still works. Diversification, such as
different equities, real estate, bonds and
commodities-did little to protect against the
downside in 2008. Even so, we don't think it
makes sense to give up on diversification
based on one-year returns in an exceptionally
What do we expect? We expect continued
volatility. We don't think fundamentals are
going to begin a sharp and sustained
improvement any time soon due to the
long-term effects from the bursting debt
bubble and resulting deleveraging. We have
already seen a couple rallies of around 20%
followed by sizable declines in the past
couple of months.
We understand that the powerlessness of
watching the value of your wealth decline.
It creates a strong desire to "do something".
At this point, we are recommending an
increased allocation to bonds. The flight to
treasuries over the last year has had a major
negative impact on corporate bonds. We
believe the asset class to be oversold and a
tremendous opportunity. We believe this
asset class will outperform stocks over the
next six to nine months.
We also want to make the point that we are
not betting against stocks over the long run.
Based on the current scandals and poor
performance surrounding alternative asset
class, leveraged asset classes and illiquid
hedge funds, we believe transparent,
"old-fashioned" growth stocks to perform very
well in the years to come. We are confident
that from current levels stocks offer good
longer-term return potential.
Like you, we find this environment literally
gut wrenching. If you are not sure if you
can stand more declines, we continue to urge
you to discuss any concerns with us. We run
investment strategies with varying risk
levels, and it is important in an environment
as volatile and trying as this one that you
are in a strategy you can live with both in
the short and long term.
As always, we greatly value the trust and
confidence you place in us to manage your
Please advise us promptly if there are
ever any changes in your financial situation
or investment objectives. Feel free to give
us a call if you want to discuss anything
Sincerely, Paula Harris and Bill Harris, CFP