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A Year After Market Low, How Should You Invest
By Derrick P. Martinez Published: 03/01/2010
It’s been about a year since stock
prices hit their low point during the
long bear market. Since then, of course,
we’I’ve seen a big rally, but some of the
decisions you made when the market
was at its lowest point may still be affecting
your portfolio’s performance
and prospects. So now that we've
reached the one-year anniversary of the
market bottom, it’s a good time to see
where you are today and how you can
prepare for tomorrow.
In looking back at the market depths
of a year ago, it’s important to note that
we didn’t get there overnight. In fact,
stock indexes had fallen about 50%
since hitting their all-time high in October
2007, which means investors went
through a 16-month downturn. Consequently,
it’s not surprising that many
people, tired of seeing gloomy investment
statements month after month,
decided to “play it safe” for a while
by putting large sums into fixed-rate
vehicles such as certificates of deposit
(CDs). And a lot of those CDs had oneyear
maturities, which means they’re
coming up for renewal.
If you bought CDs a year ago,
you probably did so for their ability to
preserve your principal, but in the process
you made some trade-offs. First, you
accepted a relatively meager income
stream, because short-term interest rates,
like those paid on your CDs, were low.
And second, you relinquished the growth
potential you might have gotten from
other investments, such as stocks. So now
that we’re a year removed from the bottom
of a bear market, can you use the money
from any maturing CDs to help you make
progress toward your financial goals?
Actually, if you hold maturing CDs,
it’s a good time to review your overall
investment strategy, possibly with the
help of a professional financial advisor.
Take a close look at your portfolio. Is
it well-suited for your individual risk
tolerance, time horizon and long-term
objectives, or should you make some
changes? Is it too aggressive for your
needs, or too conservative? Is it properly
diversified among investments suitable
for your situation? While diversi-
fication, by itself, cannot guarantee a
profit or protect against loss, it can help
reduce the effects of volatility and give
you more chances for success. Keep in
mind that while CDs are FDIC-insured,
other investments carry certain risks that
you should understand before investing.
Of course, if you hold investments in a
brokerage account, it’s likely not your
only portfolio — you may well be investing
through your 401(k) or other employersponsored
retirement plan. If so, keep
in mind that you probably don’t want
your investments to duplicate those inside
your 401(k) account. Instead, look
at your investment picture “holistically”
and seek to diversify your accounts.
Once you’ve reviewed your portfolio
and identified any possible gaps,
you can then consider where the money
from any maturing CDs can be used
most effectively.
You probably won’t see any festivities
marking the one-year anniversary of
the market low. But you can celebrate in
your own way — by considering available
investment opportunities.
This article was written by Edward
Jones for use by your local Edward
Financial Advisor.
