There is a great deal of discouragement and disinterest out there among typical investors, and perhaps, rightfully so. Many of those so affected are therefore either resigned to merely holding on to their current long-term investments or have already pretty much sold most of their holdings and retreated from investing for the time-being altogether.
We can empathize with these reactions in light of the continued poor performance of the major stock indices and the great majority of stock funds. And only time will tell if these "lay low" decisions were indeed the right reactions. So for those large numbers who have chosen to follow these paths, I hope for their sake that such decisions will have proven wise in hindsight.
I am much more in agreement with those who have chosen to hold on for the long-term than I am with those who have sold out of most of their funds. A third strategy, one that we also endorse, arises when you are both able to sell a position while you are still ahead (although unlikely recently for many funds) and redeploy some investment dollars from an overvalued category into one with better potential going forward.
We therefore urge you to review what we said in Newsletter 62 as a way to help you determine which categories of investments seem most likely to outperform or underperform in the next few years. Obviously, no one can predict exactly in this regard. But the beauty of what we presented there is that it helps remove emotion from your investment decisions. Instead of basing your decisions on what is happening today, Newsletter 62 shows you how to base your decisions on literally everything that has happened over the last 3, 5, or even 10 years! You will be investing based on long-term trends and should profit as long-term underperformance "reverts to the mean". Another reason for following Newsletter 62's approach: You will not be tempted to buy yesterday's winners, a major failing of many investors.
In light of data showing that most of the major categories of stock funds are still trending downward, effective 5-15-02, we are reducing our allocation to stocks from 70% to 62.5% and raising our bond position to 32.5% from 25%; cash remains at 5%.
Note: Remember that your allocation should reflect your own circumstances; ours is used primarily to estimate a "best total return portfolio" and to calculate our performance at the end of each quarter. My own allocation may not be identical to that shown since I use currently use bond funds as my sole source of living expenses and therefore, I usually have a higher percentage of bonds than shown in the suggested allocations.
On a year to date basis as of May 13, the S&P 500 is down -6.4%. Every single one of our 13 Model Portfolio funds is doing better than this benchmark! This includes 9 stock funds and 4 bond funds. See Newsletter #61 for the funds included and their recommended weightings.
We have now been publishing this Newsletter for 3 full years, the first issue having appeared on May 13, 1999. We do not advertise our site so it still remains largely unknown. And many people remain skeptical that we have any more knowledge than anyone else. So be it. For anyone who followed even some of the suggestions we have made have usually come out way ahead of the major mutual fund averages over the last few years.
I receive neither pay nor hardly any recognition for the free information I provide. Since though I myself have invested in the categories of funds I have recommended in these newsletters, the extra performance I have enjoyed over the last 3 years has been reward enough!
Tom Madell, PhD