Thursday, October 2, 2008

Wise Investing Advice for Turbulent Times

These are scary times. I heard last Friday that my bank had shut its doors. Fortunately, another company had bought them out, so that I can still write checks, visit the ATM and receive automatic deposits from my companies. What if they'd not been bought out? How could I access my funds?

These are just a few of the questions people are asking these days. David Hultstrom is a financial adviser I respect. He gave me permission to reprint his recent newsletter below.

Financial Foundations October 2008 Newsletter, by David Hultstrom.

There seem to be a lot of questions out there about what is going on currently, so this month's newsletter will touch on a number of items and provide links to useful resources.

1) If you need a counterbalance to all the blaring headlines and breathless reporting about the current state of the financial markets, I highly recommend listening to the presentation at

2) As you undoubtedly know, bank deposits are covered by FDIC insurance. If you would like specific information about how the coverage works, see

3) Investment accounts are covered by SIPC insurance and information about that and other issues related to the failure of investment firms can be found at

4) There are a number of services that rate the safety of banks (see, unfortunately most of them cost more than it is worth for a consumer who simply wants to know how their bank is doing. However, does have a free search to see how your bank is rated at

5) The New York Times had a good interactive graphic that gave a sense of the size of the problems, see and move your mouse over the listings. Note the data is a few weeks old now, which seems like an eternity in these fast-moving times. Also, this graphic gives a sense of the size of the Lehman bankruptcy

6) Based on monthly data since World War II, there have been 6 severe stock market downturns (declines over 20% in nominal terms). In these, the average decline has been about 1/3, and they have lasted an average of slightly over 3 years (in other words, the time from a peak through a 20% or more decline then on to a new high). In the worst of these (1973-74 and 2000-02), the market declines have been on the order of 45% and lasted 4-6 years until portfolios were back to their previous values. Currently, the U.S. stock market is down approximately 20% from its high almost a year ago. There is no way to know if it will go higher or lower from here. This is subtle but important. If there was a consensus that the market was going down further it would already be down to reflect that consensus. Conversely, if there was a consensus view that the market was headed higher, it would already be higher to reflect that expectation. There are only two ways to "win": 1) be smarter than the collective wisdom of everyone participating in the market, or 2) ignore short term fluctuations and remain with your target investment portfolio knowing that in the long run, you will be better off than the vast majority of folks who tried to time the market getting in and out. In this, as with many things, slow and steady wins the race. Occasionally, the market seems to get irrational and I think you may be able to profit from being less subject to the current hysteria (either positive or negative), this does not appear to me to be one of those times. I think the possible outcomes are much more uncertain than normal from this point and there is a significant chance of further deterioration and also a significant chance that the market could recover from this point. I don't know, and I know that I don't know (which might possibly make me smarter than the TV talking heads though less entertaining - I leave that for you to decide). Uncertainty and risk is why none of our clients have a 100% stock portfolio and none of our clients have 100% of the stocks they do own located solely in the U.S.

My tentative plan is to write next month about lessons that can be learned from both the technology bubble in the late 90's and the lending bubble we are still recovering from. Until then, if you need anything - even just to talk about what is going on - please feel free to contact us.
Note: Our clients are located around the country (and world), if you know someone we may be able to help, we would be happy to do so. While Financial Foundations is intended primarily for our clients, we are happy to expand our readership so feel free to pass this along. If you have received this from someone else in that manner and would prefer to get it directly from us each month, please let us know. Similarly, if for some reason you no longer wish to receive this (as unimaginable as that seems) simply let us know that as well.


David E. Hultstrom
Financial Architects, LLC
Financial Planning & Wealth Management
Address: 107 Weatherstone Drive, Suite 510
Woodstock, GA 30188
Phone: 770-517-8160
Fax: 770-517-8159
Toll Free: 888-Fin-Arch (888-346-2724)
Web Site:
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