subject: Active Portfolio Management and the Tragedy in Japan [print this page] Active Portfolio Management and the Tragedy in Japan
Over the past 2 weeks, financial markets worldwide have been jolted. This past Wednesday, markets slid for the third straight day on fears that a partial meltdown may have occurred at a nuclear plant in Japan. As a consequence, stocks erased nearly all of their gains for 2011. The Dow lost 3.6 percent over a 72 hour period, its worst three-day loss since July, 2010.
At the same time, Treasury prices jumped and yields decreased to their lowest levels this year as investors ran to investments perceived to provide more stability. Bill Stone, chief investment strategist with PNC Wealth Management, stated "Investors are moving away from anything that has an element of risk with it because they don't know what's happening in Japan."
In addition to the Dow declines, the S&P index fell nearly two percent and was showing a loss for the year when it had previously been up as much as 6.8 percent back in February. At the same time, the Nasdaq Composite Index fell 1.9 percent to 2,610, corresponding to a slide of 1.4 percent for 2011.
Yields on the 10-year Treasury note dropped as low as 3.15%, the lowest level this year which, if there is a silver lining in this cloud, lowered already bottomed out mortgage rates slightly. But in the face of a Commerce Department report that new and existing home sales were decreased in February, it is unpromising that the small decrease in mortgage rates will have much of an effect on the housing market.
Coupled with this news was the steep incline in fuel prices in February along with a reported 4% escalation in the cost of food- the biggest one month increase in the previous 36 years. Shares of companies affected by the rise in food costs also fell on this news.
Current world situations support the need for active portfolio management in financial and retirement planning. As stated in previous writings, the key to proper wealth management lies not only in finding the "winners" in the market but also missing the sharp declines and knowing when to move and shift investment strategies accordingly. Although active portfolio management is not a guarantee of security from market downturns, it can sustantially reduce the hazard of loss.
A portfolio worth $100,000 last week may have easily lost 10% of its value in just 4-5 days. As a result, that account would now have a market value of $90,000 and necessitate more than an 11% increase just to return back to the original $100,000. Active portfolio management may have prevented much of the loss by anticipating market shifts based on world sentiment over the crises in Japan. Now that we are starting to see a correction on Wall Street (the Dow is up 144 on the day of this writing), active portfolio management could have resulted in profits during the past seven days, rather than panic.
Working with an experienced and dedicated financial planner is the only way for you to harvest the benefits and avoid the valleys of market volatility- a volatility that is not likely to dissipate any time soon.
Investment Advisory Services offered through John P. Dubots Capital Management, LLC.
