With all of the recent market turmoil we have seen a tremendous amount of investment dollars moved to cash. Investors who traditionally relied on money market, bonds, and CD's for their "safe money" are now buying safes and storing cash and gold at home.
As a result of the "flight to safety" we have seen treasury notes returning almost zero at one point and precious metals hitting all time high prices.
The simple economic principle of supply and demand teaches us that as more people demand "safety" it becomes more expensive and as "risk" becomes less desirable it becomes less expensive. With investors fleeing the market like a plague this last month, equities in general have become a bargain. If you are a K-mart shopper, we call this a blue light special!
Let me share some statistics with you. Back in the year 2000 the price earnings ratio of the S&P 500 was about 42:1. In other words for every 42 dollars invested in the S&P 500 as an index you would earn one dollar. Today the Price Earning ratio for the S&P 500 is about 14:1. Based on my math it takes about 1/3 the investment that it did in the year 2000 to earn the same dollar.
I don't have any better idea of what to expect in the stock market over the next couple of weeks or months to come than the next guy. I do know that over longer periods of time the market tends to act rationally. I firmly believe that if you have a well diversified portfolio you will look back on this period in five years and be glad that you were invested.
I am aware that there are many "chicken littles" writing about the end of the world as we know it. Some of them may have prognosticated the end after the crash of 1987, the Asian currency crises of 1997, 9/11, and the dot.com bust. For those who can keep a level head, these are times of opportunity.
For those who have concerns about further downside exposure to the market, there are tools that can limit or completely eliminate the downside risk and allow you to participate in the market once it begins to recover. Two of the tools available are structured products, and variable annuities. If you have an interest in learning some of the tools available to you to reduce down side exposure and provide market participation, please feel free to contact me at 760-705-3517.