Where Are We In the Investing Process?

Where are we in the investing process? The short answer is, "right where we need to be".

After a multi-year run-up, the stock market started to weaken in late 2007. Then came the breath-taking fall in October 2008, after which we rebalanced and took tax losses. After that, the stock market just drifted lower through early March of this year, after which we again rebalanced and took more tax losses. Starting in early March of this year the stock market surged for two months. It was the best two month performance since 2002.

So our current situation is promising. Clients with substantial taxable accounts have tax losses that will, under current tax law, result in tax free capital gain income from their mutual funds for years.

The rebalancing we did resulted in many mutual fund shares being bought at fire sale prices for all of our clients. We are set up for excellent returns as the stock market recovers.

No one can say for sure if the bear market is over. Typically, the stock market recovers from a recession a quarter or two before the recession ends. Some economists think we may be there. If they are wrong or if some external event shakes the market and it drops again, we will simply grasp the opportunity to buy even more inexpensive shares by rebalancing and take even more in tax loss.

But for now, things are looking good.