Housing Burst Will Cause National Recession

[privatebanker]

I’d recommend asking your friends/family if they work with an advisor. If that doesn’t uncover anything, you can check the financial planning board site:

http://www.fpanet.org/plannersearch/search.cfm

That might direct you to someone good. I’d recommend meeting with possibly two or three advisors.

Watch out for advisors that try to only recommend insurance strategies, stock picks, hot dot chasing, etc. They should help you establish a diversified portfolio of low correlating asset classes. Also, pay attention to fees and don’t be afraid to ask how they’re compensated. Some charge a flat fee and an additional fee for investment implementation. Others charge a fee based assets under management.

Most importantly, do your homework before meeting with them so you cover all of your concerns.

Good Luck!

[Jim Brubaker]

Thanks PrivateBanker for the SIPC correction. I’m just getting old.

What I was trying to convey with mutual fund managers, is that they have never experienced a bear market. The market has only gone up since 1972. The idea of holding cash to wait for a good buying opportunity doesn’t exist with them. They must invest the money as fast as they receive it. There is no performance factor for holding cash.

If the market ever decides to tank, everyone of these money managers has made the same bet, the market is going up.

Normally if the market did tank, investors could wait to sell hoping that the market would make a come back.
The case is different with Mutual Funds. If their holders say sell and give me cash, they have to sell into a downward spiraling market. These manager’s might be very intelligent and skillful, but their hands will be tied if and when this happens.

[privatebanker]

OK, here’s my take on this just for sake of debate. I totally respect your views first and foremost.

Mutual Fund managers do carry a cash position which can vary depending on market conditions and the fund’s objectives. They can also employ derivative strategies to protect asset value. This takes us into another category. Active fund managers can manage a cash position depending on how the market is behaving. They may not keep it for a long time but there is no rule against them doing so. If you invest in an index fund, you probably won’t have any cash position and no break from a crashing market. These funds offer daily liquidity so people that start panicking on a market dip can get out. The successful investors are the ones who stay in for the duration.

The last bear market to my recollection was fairly recent. I believe it really got started in March of 2000. Before that, back in the 80’s, the market was pretty ugly for a while. My point here is everything is cyclical. Certain assets will outperform other assets depending on macro and micro economic situations. Always make sure that you invest in a fund where the manager has been around for atleast 5-7 years.

I just think investors need to keep a grander view of their investments and not focus on short term trends. If you do your homework and pick the right managers you should be fine. Have exposure to as many noncorrelating asset classes and stick to an asset allocation policy of rebalancing.

But like I said, this is just my view and I’ve been in the business a long time and have experienced a lot of crazy markets (up & down).

[Jim Brubaker]

I remember a Monopoly game we played a long time ago, The bank ran out of money, so we printed some money using a pencil and paper–these were $1000 notes. Then we ran out of houses and hotels, we improvised. We used chess pieces.

Now take two steps backward into today. Derivatives are a parachute that will save the world when everything hits the fan. If you believe that, then contrary to my beliefs, the tooth fairy must still be alive.

[privatebanker]

Are you serious?! No wonder that tooth has been sitting under my pillow for all those years! I’ve been waiting for my big windfall! I’d better let JP Morgan know that their derivatives are no good anymore, thanks for clearing that up.

[Author]

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