By Joe Smalley, AIF®

When I walked my dogs this morning, it felt like fall.  I love fall.  Maybe it is because I am a bald Irishman and look forward to the end of summer, but it is also because it means that football is just around the corner and the students are making their way back to town eager to learn.

Historically, fall is also a time when the stock market tends to test the lows for the year – and this year, probably our resolve, as well.  In the coming weeks we will likely see economic data that points to a slower recovery than many had hoped.  Talk of a double dip recession is back.  In all likelihood, the stock market will react negatively on the news.  But not just because of the numbers, but also because of the season.  September and October have always been months where the markets are jittery. 

Knowing that, should you sell your stocks today?  The hardest thing to do, as investors, is to be disciplined.  It is human nature to want to “do something,” especially if we think we know what is going to happen in the future.  Often the problem isn’t when to sell – it’s when to buy back in if you sell. 

Think of it like this – what is the purpose for investing?  Is it to have more money at the end of the trading day?  Or is it to have more money at a point in the distant future?  You only want to invest in the stock market for the long term.  If you need money in the short term, there are appropriate investment vehicles for short term investing – cash, money market funds, CDs, short duration government bonds.

If your time frame is longer than five years, you probably are looking to outpace inflation.  (Have you noticed that just about everything costs more today than it did five years ago?)  The best way to do that is to invest in a diversified portfolio matched to your time horizon and tolerance for risk. 

We have several model portfolios for you to consider that are professionally and actively managed, based on risk and time horizon.  Ask us to see which models might be right for your situation.

Returning to the basic question at the top of this note – should you sell your stocks going into the fall?  Well, we already established that if you need this nest egg within the next five years, you probably should be invested in cash, CDs or bond – not stocks.  This means that if your nest egg is invested in stocks, then your time horizon is longer than five years.  If that is true, it doesn’t matter what the market does in the short term.  Markets are cyclical.  Historically, a balanced portfolio held for a long period of time tends to help clients accomplish their long term goals.  So the answer is no; it is probably better if you just hold on tight and ride out what might be a bumpy storm this fall.

However, if you simply cannot sleep well knowing that the stock market is volatile right now, there is another consideration – look to managers who are more tactical.  This means that they are moving in and out of the market based on shorter term trends.  If they see that a sector or class is likely to go down, they sell out of those positions.  If they see opportunity somewhere, they buy into those positions.  Of course, as with any investment, these types of securities can lose value and are only as good as the managers themselves.  But if you are interested in learning more, please let us know.

There are also some investments with guarantees.  In this type of environment, many investors find guarantees to be appropriate for their long term nest egg.  If you would like to learn more, please contact us and we can schedule a time to review your situation.

Speaking of guarantees, I’m going to go out on a limb here and say that come November, Washington D.C. will look different than it does right now.  That is not a partisan jab, that opinion comes from what happens historically in off-year elections, namely that the party not in control picks up seats in the House and Senate.  What does that have to do with investing?  Nothing.  And everything. 

When markets are efficient, they move based on corporate earnings.  When a company’s earnings are good, their stock tends to go up; when not so good, their stock tends to go down.  When the market is not being efficient, politics, the economy, and news move the markets.  There is a saying on Wall Street – buy on the rumors, sell on the news.  We’ve been experiencing a lot of “news” lately, and that will likely continue up until the election.

But keep your eye on the prize – if you are an investor and not a trader, your time horizon is long.  Day to day news will move the market.  Recently the St. Louis Federal Reserve President, James Bullard, agreed that the economic numbers have softened lately, but he sees “reasonable growth” in the second half of the year and an improved 2011.   Let’s hope he is right.

In the mean time, I will leave you with two more Wall Street quotes:

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
Mark Twain

“The key to making money in stocks is not to get scared out of them.”
Peter Lynch

As investors, it is often difficult to see the forest for the trees.  Stay focused on your goals.  If you would like to discuss your asset allocation or update your financial plan, give us a call – we’re here to help.

This fall, my wife and I are headed on vacation to celebrate our anniversary.  If I happen to be out of the office when you call, Crystal can help you or pass you on to the friendly people at our trade desk in Boston; I will be sure to get back with you as soon as I return.  Until then, if you have any questions about the economy, the stock market, or about Spartan football, please give me a shout.