IS THE TRAIN LEAVING THE STATION? (REMEMBER THE BUCKETS!)

 

March 28, 2013

 

 

On October 9, 2007, the Dow hit 14,164 and then proceeded to drop precipitously for all of 2008 and into early 2009. In March of 2009 the Dow began its long recovery and just this month (March 2013) topped its previous high from 2007. As if the trauma caused by the market decline was not enough, we have also seen housing prices tumble during the same period. The Federal Reserve has done everything possible to stimulate the economy (and the stock market) by inflating its own balance sheet to the tune of more than 1 Trillion dollars per year of purchases of Treasuries and mortgages, about 3 Trillion so far. At the same time they have kept interest rates at almost zero. If the economy is struggling and the market is doing reasonably well, why the “Disconnect”? Let’s look at some of the issues:

 

 

ECONOMY:
 

·Slow GDP growth

·Barely improving employment numbers

·Barely improving housing prices

·Federal reserve is keeping interest rates close to zero for the foreseeable future

·Uncertain tax and fiscal policy

·Dysfunctional Congress

·Sequestration

·Enormous debt and deficits with little or no attempt to curtail spending

 


MARKETS AND RELATED ISSUES:
 

·Corporations are making profits

·Corporations are holding very large cash positions

·The stock market is “fairly valued” (as measured by P/E ratios)

·The Dow has reached a new high

·Eurocrisis has not gone away, e.g., Cyprus is the latest country in trouble

 


PEOPLE:
 

·Loss of confidence in Congress and the government

·Fear of another major decline like 2008, but also fear of missing out on a rising market, i.e., IS THE TRAIN LEAVING THE STATION WITHOUT ME?

 

 

 

WHAT SHOULD WE DO NOW?REMEMBER THE BUCKETS!

 

 

Let’s remember that no one can predict the market’s performance in the short run, i.e., 1 to 3 years. If you are more than 3 to 5 years away from retirement, then you can keep a long term perspective and keep the majority of your funds in what we call Bucket 3, or a long term bucket which could be mostly equities. For those of you in retirement or within a few years of retirement, we believe in the BUCKET strategy. Let’s review:

 

 

BUCKET 1:Keep enough money to provide 3 to 4 years of income in very safe investments and expect a yield of less than 2%.

 

 

BUCKET 2:This will not be touched before 4 or 5 years and can be invested in Intermediate type investments. Expect a return of no more than 2 to 4%.

 

 

BUCKET 3:This will not be touched before year 8 and can be invested in longer term/market related investments. The goal here would be an average annual return of 6%+. Realize that these investments are subject to market risk. There could even be losses in some years, but the money will not be touched for 7 or 8 years. Even the 2008 market losses were recovered in 6 years.

 

 

So for those of you who are worried about the train leaving the station AND you don’t want to miss a rising market, remember that your Bucket 3 funds are invested and will capture the market gains.

 

 

OUR FIRM’S STRATEGY IS:
 

·ASSET ALLOCATION, INCLUDING ALTERNATIVE ASSET CLASSES AND STRATEGIES

·USE OF THE BUCKETS TO HELP YOU REACH YOUR GOALS

·MAKING SURE THAT YOUR ANNUAL WITHDRAWALS DO NOT EXCEED 4% TO 5% OF PRINCIPAL
 

 


THE OVERALL GOAL IS TO ENABLE YOU TO MAINTAIN YOUR LIFESTYLE AND NOT OUTLIVE YOUR ASSETS.

 

 

Let’s keep a Long Term Perspective! If you have any questions, or would like to revisit your asset allocation and investment strategy prior to our next meeting, please give us a call.

 

 

Happy Easter!

 

Sincerely,

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Edward J. Kohlhepp, Jr., CFP®, MBA

 

http://www.facebook.com/pages/Kohlhepp-Investment-Advisors/143204745739600

 

 

Please contact us whenever there are any changes to your financial situation, personal situation or investment objectives.

Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

 

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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
Fax: 215-340-5788
Email: Info@KohlheppAdvisors.com

Securities offered through Cambridge Investment Research, Inc. a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Kohlhepp Investment Advisors, Ltd., a Registered Investment Advisor. Kohlhepp Investment Advisors, Ltd. and Cambridge Investment Research Advisors, Inc. are not affiliated.

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