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Staying the course during a recession

Posted: December 15, 2008 8:58 p.m.
Updated: December 16, 2008 4:55 a.m.
Now that the media has announced we are "officially" in a recession, do you think anyone you know wasn't aware of it?

The media announced last week that the recession started in December, 2007.

Anyone who has looked at their retirement account, watched television or read the paper knew this. Only the market was "shocked" and reacted by having the fourth largest loss day. It's amazing to watch the emotions that move the market down.

Investors may be feeling anxious amid increasing losses in values of their assets now that we are in a recession. But if you look at the past 10 downturns of the market and the S&P 500 from 1949 through 2001, there are reasons to stay the course.

A study by Ned Davis Research shows that the Standard & Poor's 500 composite Index has tended to bounce back quickly after bottoming out during the past 10 recessions.

The index generated a 24 percent mean return six months after bottoming and 32 percent a year later. This was the average of all 10 downturns as measured by this research.

No one can predict a market bottom, but investors who maintained a long-term perspective and held on to their investments stood to benefit.

While the past can provide historical perspective, it is not predictive of future results.

Investors who sold stock mutual funds to avoid the pain of a recession and reinvested later could have missed most of the subsequent recovery.

This is indicative of what we are finding talking with others, as many investors are moving assets out of the stock funds and into money market accounts.

The S&P 500 rose more than 15 percent on average three months after recession-low points.

Although it feels like turbulent times, recessions can represent a buying opportunity for investors who stick to a program of investing regularly.

Of course, there is no guarantee the market will turn around soon after a recession, and past results should not be viewed as such. But remember, the S&P 500 generated positive results in nearly every three, six, nine and 12 month period following its low point during the last 10 recessions.

Unlike previous recessions mentioned in the report above, I believe this recession has some different issues.

Your particular position, desires and needs should be reviewed and discussed with your financial advisor.

And, as I have always preached, this time is a perfect climate to consider variable annuities and their living benefit riders that offer principal protection, growth and guarantees in a volatile market.

Jim Lentini is president of Lentini Insurance & Investments, Inc., located in Santa Clarita. His column reflects his own views and not necessarily those of The Signal.


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