Dental Tribune U.S. Edition

Dental Tribune U.S. Edition | April 2012 A25 would be triggered, which would in turn signal program selling. This would cause the market to fall as more and more pro- gram selling would ensue. This period in the market has been labeled “The Crash of ’87.” Let’s call this automatic pilot ap- proach “complacency.” Starting in 1995, new technology burst onto the scene, and the over-the-counter market (NASDAQ — all those four-letter stocks) became the “new” hot invest- ment. It was the subject of every ana- lyst, commentator and/or neighbor with a computer. Sometimes the value of a stock would double in a day. It looked like there was no end to the money that could be made. It looked easy, and com- placency took hold again. “How could you lose? The Internet isn’t going away. Technology has changed our lives.” That bubble burst in March 2000, and the subsequent recovery was interrupt- ed by the attacks on Sept. 11, 2001. This economic road-bump would keep fur- ther growth in the stock market at bay until March 2003, when stocks began to rally again. Who would have guessed the next bubble would be real estate? There is another Wall Street axiom, “Trees don’t grow to the sky.” Housing prices soared; people were refinancing their mortgages and spending their equity as if going to an ATM machine. That bubble has now burst, and real estate values have plum- meted from stratospheric highs. This has caused many consumers a tremendous amount of pain and panic. Many, feeling helpless, have walked away from their homes to the detriment of their credit scores and overall financial wellbeing. We believe that this real estate adjust- ment is going to have long-term effects on our economy, as it will take time to work through the excess real estate inventory. Until that happens prices probably won’t rise. Although there are pockets of the country that have already seen some stabilization, it could be years before there is substantial growth in the real estate market. We see the new bubble being interest rates. Remember that current yields are a function of income divided by price. If bond yields are low, then bond prices are high. Everyone is looking for someplace to invest their money for a better return. The U.S. Treasury is borrowing money for two years at a rate of less than 1 percent. Money market rates are less than one quarter of 1 percent (0.25 percent). So if you want to help reduce risk, you may need to endure some pain by accept- ing low current yields. If inflation stays low, then real return is OK. Unfortu- nately, if inflation starts to rise, then the net return on low yielding investments could be zero or worse. Looking for more income in the market is like walking through a minefield. If you exclusively hunt for yield without paying attention to quality, then your perceived “safe” investment might not perform to your satisfaction. It reminds me of another ad- age, “Buyer beware.” I can’t predict when, but interest rates will rise. They cycle just as all other asset classes and markets do. OK, so what do I do? Here are six things you can do now: Keep a good cushion (we call it a bun- ker) of available cash for emergency pur- poses. This could include money mar- kets, certificates of deposit or short-term government bonds. No, the yields aren’t attractive now, but it will allow you to access funds if needed without forcing the sale of something at an inopportune time. Keep your portfolio liquid. Stay clear of investments that tie up your funds and have large charges or limited liquidation rights. Have a diversified investment plan. By identifying future goals, you can back into the risk that you should be taking. If that is excessive, then you know you need to modify your goals and expecta- tions. Think globally when determining your asset allocation. There may be invest- ment opportunities in the international markets that could potentially enhance a portfolio’s return. Look for transparency in your invest- ments. What do you own? What does it cost? These are all appropriate questions to be asking your advisors. Stay disciplined. Keep your consumer debt low, and continue to actively save for your future. Keeping these points in mind will help you avoid some of the pitfalls that inves- tors have suffered over the last decade. It is through planning and discipline that we believe will have the best chance of reaching the financial future of your dreams. Notices This article was written by David Keator, a partner with Keator Group. Investment in securities and insurance products are not FDIC-insured, not bank guaranteed and may lose value. Invest- ment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC, Ke- ator Group, LLC, is a separate entity from WFAFN. Wells Fargo Advisors Financial Net- work, LLC, (WFAFN) did not assist in the preparation of this report, and its accura- cy and completeness are not guaranteed. The opinions expressed in this report are those of the author and are not nec- essarily those of WFAFN or its affiliates. This material has been prepared or is dis- tributed solely for information purposes and is not a solicitation or an offer to buy and sell securities or instruments or to participate in any trading strategy. Past performance is no guarantee of future results. Diversification does not guaran- tee a profit or protect against loss. Invest- ing in foreign securities presents certain risks not associated with domestic in- vestments, such as currency fluctuation, political and economic instability and different accounting standards. This may result in greater share price volatility. Ad iNdustry NEWs “ BUBBLE, page A22