Intermountain Jewish News

On Dec. 1, 2008, the National Bureau of Economic Research officially declared that America had been in the grips of a recession since December, 2007.

The headline-making news did not faze the majority of Americans who already knew something was terribly wrong.

Approximately 2.6 million jobs were eliminated in 2008. The housing market, which cracked under a slew of subprime mortgages, sank dangerously close to Depression-era lows.

Venerable financial institutions either shut their doors or merged with other companies in a last ditch attempt to stay afloat. The government extended a hand but received more slaps than applause.

At one point, gas prices soared to over $4.50 a gallon, which took an extra slice out of already shrinking paychecks. The cost of food jumped so sharply and suddenly that shoppers reeled from sticker shock.

Dilemmas formally limited to the elderly –– whether to forgo their monthly Lipitor in favor of fresh vegetables –– suddenly became daily concerns for people on the lower end of the age scale.

The stock market, that sensitive barometer of economic winds, fell 38% in 2008. Precipitous daily declines ranging from 500 to nearly 700 points froze the heartiest investors.

The wealthiest individuals who thought they could survive anything called their brokers in a frenzy.

Middle-income couples who contributed regularly to their IRAs in anticipation of retirement lost so much money that they could no longer afford to retire.

Then, just when things looked their bleakest, Bernard Madoff and his $50 billion Ponzi scheme entered our financial vocabulary.

Madoff’s tentacles, which affected institutions, charities and individuals all over the world, hit the Jewish community particularly hard.

On Jan. 20, the day Barack Obama was inaugurated as the 44th president of the US, the Dow fell 332 points. National investor confidence, at least on

Wall Street, evaporated due to negative forecasts from the Royal Bank of Scotland.

As bad as it sounds, this litany of financial woes will change its tune –– eventually.

The economy, by its very nature, is a cyclical beast.

What goes up invariably comes down –– and goes back up again.

The big question is when.

The Intermountain Jewish News asked some local investment advisors to weigh in on the current economic crisis and offer professional insights to weather the storm.

Jane McMillan, who is with the global wealth management group at Morgan Stanley, says most financial analysts anticipate that an economic recovery will take hold in mid-2009.

In the interim, some investors might want to consider keeping a portion of their wealth in cash –– CDs, money markets, savings accounts, FDIC-insured options offered by brokerage firms –– until the dust settles.

“CDs are excellent vehicles for funds that you don’t want exposed to stock market risk,” she says. “Annuities can also play an important role in creating retirement income. But it’s important to evaluate the financial strength of insurance companies issuing annuities.”

Quality municipal bonds, corporate bonds and treasury inflation-protected securities yield more relative value right now than straight treasury bonds, which are at a low yield, she says.

“Your financial advisor should tell you how particular municipal bonds are rated, and which are the strongest,” she adds.

The decision whether to stick with the stock market depends on one’s comfort level, which McMillan believes “is the most important factor in how actively you participate in the market.

“However, there are many reasons to stay in the stock market. History shows that a disciplined and diversified approach to wealth management is one strategy for navigating choppy waters.

“If you take your assets out during a downturn, you may miss the best month in a recovery –– which could significantly lower your returns.”

Shoppers may love grabbing up bargains in the stores, but the average investor is not inclined to take advantage of good deals in the stock market.

“This is so true,” McMillan says. “When the stock market is going up, investors typically want to buy. When it’s falling, investors feel uncomfortable about buying. But this is exactly the time when they should consider investing in high quality, undervalued companies that are trading lower than value.”

Prior to Bernie Madoff, the average investor didn’t give much thought to whether his or her investments were safe. One simply assumed a level of trust.

“It’s important to objectively evaluate the financial advisors and firm advisors with whom you affiliate,” McMillan stresses.

“Ask about the due diligence process: the evaluation process, steps and criteria that managers have to meet in order to be selected by a firm. A hot tip from Uncle Harry doesn’t qualify.”

She also says it’s crucial for a company to separate clients’ funds from assets held by the particular firm and its managers.

“This was not the case with Madoff. He had the money, and he was the manager.”

To avoid a future housing crisis, McMillan says homebuyers “should not be seduced by introductory low rates that can go up substantially later on. And don’t purchase a property unless you feel comfortable about making the payments.”

McMillan says the US has a history of being a spending vs. savings society.

“Even in a volatile markets, it is especially important to continue contributing to 401Ks and other retirement plans. People who do so will look back years from now and realize that contributing when the market was down was a good decision.

“We need to be smart spenders. If you follow the adage, ‘pay yourself first,’ you will create a balance between saving and spending.”

Jeff Wilson, owner of the Wilson Advisory Group, is an upbeat person who can find a light at the end of just about any tunnel.

When it comes to the current economy, however, his prognostications are frankly glum.

“Investors need to be extremely cautious in 2009,” Wilson says. “The economy and financial systems are very fragile, and I expect dramatic declines in 2009 in almost every area.

“I believe the markets may rebound, but not much higher than where they started in 2009,” he says. “It will be a scary and volatile ride.”

While many investment advisors hesitate linking the current recession to an imminent depression, Wilson speaks his mind where others fear to tread.

“After 34 years in this business, I’ve never seen an economy like this one,” he says. “But I’ve read about one –– the Great Depression in the 1930s.

“The comparison of our market economy and stock market to the 1930s is appropriate. That was the last time we faced a crisis of this magnitude nationally and internationally.”

Wilson, who received a degree in economics from the Wharton School of the University of Pennsylvania, is not a big fan of the stock market.

“People need to understand that the Japanese stock market is trading today at the same levels it did in 1981,” he says. “You have to ask yourself, how will my future investments be affected by [strategies] that take 28 years to see any growth?”

According to Wilson, there are nine dangerous myths of investing: 1) a strategy of buy and hold makes money; 2) stocks outperform bonds; 3) bonds are the safest and best way to preserve your portfolio; 4) you can’t time the markets; 5) the modern portfolio theory creates safe diversified portfolios; 6) dollar cost averaging will always be profitable; 7) real estate always makes money; 8) stock market growth corresponds to economic growth; and 9) standard deviation is the best way to measure risk.

“Buy low, sell high”is the only steadfast and true investment rule, Wilson insists.

It’s still possible for investors to successfully grow their wealth by utilizing certain fixed income securities such as annuities and bonds, he says.

Real estate, especially with today’s rampant foreclosures, might be another sound investment area in the future.

“All investments have up and down periods,” he says. “You must be proactive –– willing to buy at the right time and sell at the right time.”

What’s important, says Wilson, is that investors focus on their particular objectives and timeframes. “And it’s different for each person and each situation.