Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Tuesday, May 25, 2010

All is Not Bleak

Last Friday’s blog titled “Stay the Course”, encouraged investors to avoid panic in light of Thursday’s 375 point drop in the DOW. Yesterday, the market was down just under another 127 points and international markets took a big hit last night. We are writing this just prior to today’s market open. Stock futures are down significantly, portending another bad day ahead.

We still encourage everyone to resist panic. On this morning’s TV news, a commentator made a good point. Do you remember where the market was a year ago? The Dow Jones Industrial Average (DOW) was 8473, That’s nearly 1600 points lower than yesterday’s close. And, in March 2009, just 14 months ago, the Dow fell to a low of near 6,500, some 3,500 points lower than yesterday’s close! Another point the commentator made was that today our economy has improved significantly from a year ago.

Yes, Europe is having a fallout similar to what we recently went through and that could affect us. Nevertheless, markets are resilient and often recover losses much faster than we think they will.

A Morningstar® video report last Friday, May 22, titled “Five Upsides to the Downturn” also helps keep things in perspective. Jeremy Glaser of Morningstar discussed five things we might consider the “silver lining” of the recent downturn. The first was that the downturn has created some good opportunities to buy quality companies whose prices are now depressed.

The second was that with our portfolios down, it’s a good time to rethink our risk assessment. Have we been too aggressive? Do we have too little in cash to live through such downturns comfortably? Or do we have too much cash on hand and should take advantage of the current lower prices to buy some good stocks at cheaper prices?

The third point was that due to the European crisis, it’s likely that the Federal Reserve will continue to keep interest rates low. That’s good for those who want to refinance their mortgage or take out a loan on a new car or for some other purchase.

The fourth point was that with the Euro trading much lower compared to the dollar, now may be the time to take that long-planned-for European trip. However, you better check on the volcano in Iceland before leaving.

The fifth point isn’t really worth mentioning. Jeremy’s interview was the week’s edition of Morningstar’s “Friday Five” and it appears Jeremy had to stretch things a bit to make his fifth point.

In summary, it’s always good to look at the “glass is half full” view of any situation. It’s easy to be depressed about the stock market of late. Nevertheless, all is not bleak. We need only look for the bright spots.


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