|
“at a time of apparent opportunity, most people are worried and negative”
|
| Rogan |
Economy, Stock Market Remain In Great Shape; Offer Great Opportunity
by Michael Rogan
Special to Tropical Breeze
Every so often, it becomes apparent to me that the
average investor has developed exactly the wrong feelings about the
economy and the stock market. So it was when I heard a recent
television poll of Americans in which the vast majority of respondents
believed that America was heading down the wrong path economically, and
things were getting worse. While it is not uncommon for the average
investor to be wrong, I don’t think I remember a time where sentiment
and reality were so completely opposed.
Even though this is a column devoted to financial
planning, this month I feel compelled to discuss the economy and stock
market. Today, like so many times in the past, we feel unsure of our
economy and downright lousy about our stock market.
Before I tell you why I believe those points of view
to be nearly completely wrong, let me remind you that I am not
recommending that everyone who reads this rush out and invest all of
their money in the stock market. For our clients, as with all prudent
investors, we only recommend an investment allocation pursuant to a
complete financial plan.
Without a plan, you are just guessing at how to
invest your nest egg to achieve your life’s goals. With a plan, you can
have confidence that you are aiming in the right direction. Having said
that, for most Americans who are pre-retirement, you are going to need
to invest much if not most of your retirement portfolio in the stock
market, if you hope to achieve the returns you’ll need so that you
won’t outlive your money in retirement.
As you are undoubtedly aware, our stock market’s
value remains below a previous high that was reached in early 2000.
Since then, we have regained most of the loss, despite suffering
through the most horrendous terrorist attack on our country’s soil as
well as a period of corporate scandal followed by government imposition
of largely unhelpful but draconian corporate regulations. But the fact
remains, we have essentially a 2006 stock market with 1999 prices.
This is not without precedent in our history, which
is important to know. The last time our stock market suffered a
dramatic decline followed by a painfully slow recovery was in the
1970s. Back then, the market had taken nearly two years (1973-1974) to
drop nearly 50% (very much like the decline of 2000-2002), and by the
late 1970s, it had yet to fully recover. Back then, just as now,
corporate earnings had grown substantially, but stock prices remained
stuck in a range — below the previous highs.
In 1979, it was so “obvious” to everyone that the
stock market was no place to invest your money, that large pension fund
managers successfully petitioned the U.S. Labor Department to allow
them to invest pension money (money designed to provide an income to
workers in their retirement) in gold and diamonds! Now you would think
between professional pension fund managers or the Labor Department,
someone would have thought better than to allow investing in gold at
more than $700/oz., given that it had been $35/oz. only 8 years
earlier. And as for investing in diamonds, I can’t imagine how one
could derive income for pensioners from diamonds. For the record, gold
prices peaked the following year at prices yet to be seen again, more
than 25 years later. And the Dow Jones Industrial Average in 1979 stood
at around 900. It is currently over 11,000, and that doesn’t count
dividends. So much for ‘professional’ opinions.
Today, corporate earnings are nearly twice what they
were in 1999, yet stock prices are no higher. In 1999, everyone loved
stocks; today, virtually no one is positive on the stock market.
Corporations are so flush with cash that more than half of the
companies in the S&P 500 are buying back their own stock — to the
tune of $450 billion, far above last years $350 billion, which set a
record by a wide margin. Rarely do investors get a clearer sign than
the boards of directors of our largest companies telling us that they
see no better investment anywhere than buying the shares of their own
companies. And this is a much bolder statement in light of the criminal
penalties imposed on boards by the Sarbanes-Oxley legislation of 2002.
In addition, economically, the Federal Reserve has
been furiously raising interest rates in an attempt to slow down our
fast growing economy — the economy with very low 4.6% unemployment.
Now, expecting big returns from the stock market while the Fed is
raising rates is foolish; however, expecting big things from the market
as soon as the Fed finishes raising rates would be consistent with
history. If you remember 1994 and 1995, you’ll know what I mean.
Please don’t take this as a recommendation to
‘mortgage the farm’ and rush full steam into the stock market. Whether
or not investing in the stock market is appropriate for you can only be
derived from the development of a complete financial plan. I only bring
this up because, as usual, at a time of apparent opportunity, most
people are worried and negative. This is not a market timing comment,
but rather intended to give you confidence that our economy and stock
market remain in great shape, as opposed to the constant drumbeat of
negativity we hear from the media. And in an era of vanishing pensions
and much longer retirements, this information may well impact whether
you will outlive your money or your money will outlive you.
Michael Rogan is president of Rogan &
Associates Financial Planners, a locally-owned financial planning
brokerage firm based in Safety Harbor. He brings nearly two decades of
financial expertise to the local airwaves on the radio show, Financial
Planning for Life, heard at 11 a.m. weekdays on AM 1250 WHNZ. For more
information, call 727-712-3400 or visit www.RoganFinancial.com
|
Front Page 
Columns 
