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.

Wednesday, April 27, 2011

What You Should Do Now

At the time of this writing the Dow Jones Industrial average sits at 12,636 points. That’s a far cry from its recent low of 6,547 on March 9, 2009. Most everyone’s portfolio has recovered nicely, assuming they stayed in the market.

The economy is still struggling, although it seems that slow progress is being made. Yet, there is still much to worry about. Oil prices have risen sharply. The Middle East is still of significant concern with Libya essentially in a civil war and Syria in serious turmoil. Today, we just heard of a bombing in Saudi Arabia that is disrupting oil flow to other Middle East countries. Oil prices are putting pressure on the world economy. Global food prices are also rising sharply.

Here in the U.S., the Federal Reserve has kept interest rates low. That’s fueled the stock market to some extent and caused the dollar to drop in value. The lower value of the dollar has contributed to our high oil prices. We expect that interest rates will begin to rise sooner rather than later. This will have a negative effect on the economy and the stock market but should be positive news for the dollar.

So what should you be doing with your portfolio? We’re sure there are many out there who are probably thinking they should put more in the stock market. After all, it’s been rising rapidly! If anything, however, just the opposite may be appropriate.

If your portfolio is broadly diversified and you have a target allocation for your stock holdings, you may want to consider trimming those holdings if your stock allocation significantly exceeds your target allocation and it’s been quite a while since you rebalanced your portfolio. We recommend that our clients rebalance at least annually.

If you have never established a target portfolio and are invested in just a few asset classes, we highly recommend you get professional help to diversify more broadly. Broad diversification can increase returns and lower risk over the long run. Rebalancing by selling those asset classes that are over-allocated and buying those assets that are under-allocated helps you buy low and sell high.

The temptation for many right now might be to buy stocks (buy high), when in reality the opposite may make more sense.


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