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If you still hold stocks, should you use the recent plunge to buy? Should you hold? or Should you just get out of stocks altogether? The answer depends on how soon you need your money and your outlook for stock prices. The first question is easier to answer than the second one -- which is virtually impossible to get right. As I posted last October, if you need your money in the next six years, it probably makes sense to sell.
How bad was January 2009? After falling 38.5% in 2009, the S&P 500 lost another 8.6% of its value last month. And the January barometer effect -- the idea that as goes January, so goes the year -- has a pretty good track record. In 60 of the last 80 years, the S&P 500's performance in January has reflected the index's annual result. For example, in January 2008, the S&P 500 fell 6%. And this January was the worst ever for the market. So maybe 2009 will be even worse than 2008.
Stocks seem to be retracing the pattern of the 1930s during which they fell about 80% from their high. If history repeats itself, and it probably will just rhyme, the Dow -- which peaked at 14,093 on October 12, 2007 and has lost 43% -- could fall an additional 65% from its current 8,000 to about 2,818 by 2010 or 2011.
So what should you do with your money -- if you have any? I put most of my money in money market funds in early 2001. Others are following -- for example, in January 2009, there was $3.9 trillion in money-market accounts up from $3.3 trillion in January 2008. I think this is a good place to put money that comes along -- (although if you can find government-backed Certificates of Deposit (CDs) -- they might have higher yields.)
Money market funds could be a good place to park your money unless those funds break the buck. Fortunately, the government is guaranteeing some of those funds. And I hope that the guarantee is a solid one.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. Portfolio recently published his eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing.
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Reader Comments (Page 1 of 1)
2-02-2009 @ 1:52PM
BHarrison said...
The FIs, the corporations, the markets andthe funds wiped out their client bases with the FRAUDS of the past decade. It's time to stop the "bailouts" and just let the free market economy sort out this mess. These INEPT, INCOMPETENT and/or CORRUPT CEOs, Boards of Directors, and uppermanagement need to be replaced with a new generation of business people with INTEGRITY and without a vested interests in protecting the wrong doings of the past managment.
2-02-2009 @ 2:19PM
Warren said...
Hmm, this same author has another story here on AOL saying how to fix all this, and still uses fear to warn us and scare us... and he has a new book for sale...
2-02-2009 @ 3:47PM
Dan said...
Investors pull back on investing as the new report from the government confirmes that all three auto makers shut down six months ago and consumer spending hit an all time low as the new unemployment report also confirms that the other six million jobs that weren't saved by Obama were lost earlier this year. This year old news sent Wall Street reeling today as the Dow dropped 4000 points by mid day...This is how I see it...
2-02-2009 @ 5:04PM
gryfrei said...
Let's all just calm down, earn what we can, save what we can and buy prudently what we really need. Not really so tough.
2-02-2009 @ 5:15PM
Sheldon said...
Food for thought:
The January effect is a 75% historic predictor for the year. What is the correlation for the January effect following years that lost 38%? I am sure it drops significantly.
There is a high probability that the return on invested capital dollar cost averaging into index funds will surpass money funds when you count the current yields which exceed money funds and the fact that you will not get an all clear sign when the market changes direction.
2-02-2009 @ 6:21PM
A said...
SOME WOULD SAY THE GOP IS THIS :(GOP) GODS OF THE PESSANTS
(GOP) = GERMAN ORDER PARLIMENT (GOP) = GLOBAL ORDER PARTY THE PARTYS HISTORIC ROOTS WHICH ARE "WAR" =WHITE ARYAN RESISTANCE THE HEGELIAN THEORY(DIALECTIC MATERIALISM)(GERMAN IDEALISM) TALK ABOUT SOCIALIST THE (GOP) IS THE GREATEST PROPONENT OF THE HEGELIAN THEORY WHICH WAS USED BY HITLER ,MARX,ENGLES AND MANY OTHER EVIL INDIVIDUALS THROUGH HISTORY HAVE INSTILLED THE BLUEPRINT ARCHITECTURE TO THE NEW WORLD (SOCIALIST ) ORDER.LOOK TO THE ARCHITECTS AND THE WORLD PLAN THROUGH THE HEGELIAN THEORY .WORLD TRILATERAL PLAN OF :RAVEN/ PHOENIX/ AND DOVE LOOK FOR ALL THE SYMBOLS TO EVOLVE WITHIN LAPELS PINS AND OTHER FORMS .....
2-02-2009 @ 6:51PM
jack said...
dow 5000 here we come. if you didn't get your cash out 18 months ago....you're screwed. if you're an airline pilot, you're double screwed since the government and airlines stole your pensions.... so you can't afford to retire at 60. so it's a good thing that the government raised the retirement age to 65. you'll probably die in place. happy motoring.