Presidential Elections and Market Cycles

In The Stock Trader's Almanac 2004, Yale Hirsch notes that based on his studies, "Presidential elections every four years have a profound impact in the economy and the stock market. Wars, recessions and bear markets tend to start or occur in the first half of the term and bull markets, in the latter half." What does this statement portend for the 2008 election? It's anyone's guess. Given the current state of the markets, the banking system and the level of fear amongst investors, history may not be as good a guide as in years past. Although the results of the presidential election remain in doubt, the financial landscape will remain unpredictable for the foreseeable future.

Many of you, in an effort to capitalize on the upside of the market, have left your portfolios exposed to significant downside risk. This overexposure to the equities markets has meant significant losses in account value over the past few months. You are not alone. According to the September 30th, 2008 edition of the Wall Street Journal, many wealthy investors are staging revolts against their advisors due to what is perceived as an over-allocation to stocks. Unfortunately, many investment professionals ignore sound investment principles in an effort to increase investor returns. When we ignore sound, time-tested principles, the results are often negative in the long run. Let's take a fresh look at one of the foundational principles of finance: asset allocation.

Every investor should maintain a broad diversification in different asset classes. Please note, i don't mean the kind of diversification you get buying a mutual fund instead of a particular stock. I'm talking about owning different classes of assets. For example, a truly diverse portfolio will hold assets from many risk classifications, tailored for the age and goals of the individual investor. Asset classes include, but are not limited to, annuities, life insurance, life settlements, bonds (treasury, muni and corporate), equities (stocks, mutual funds and ETFs), real estate (residential or commercial), commodities (precious metals, cattle or FCOJ), as well as private business arrangements (private placements). Although some of these classes of assets may not be right for you, some exposure to each class would represent a broad diversification in your portfolio. Diversification is very important, with the current market downturn acting as a painful reminder of this principle. Simply put, a broadly diversified portfolio is essential to minimizing overall portfolio risk.

At Comprehensive Financial Services (CFS), we specialize in creating investment portfolios that are broadly diversified. We have access to many unique asset classes that are not correlated to the stock market. If your portfolio has suffered losses from the recent market downturn, it may be time for one of the professionals at CFS to evaluate where you are and make recommendations to protect what you have.