A STRATEGY FOR ALL SEASONS
We are receiving many e-mails and phone calls from clients asking
if we are recommending changes in asset allocation in the wake of
the World Trade Center tragedy and what is now perceived to be a
U.S. economy in recession.
Our response remains the same:
If you are committed to a successful, long-term investment strategy,
frequent changes in approach are not only unnecessary, but are usually
unwise.
Experience shows that it is impossible to outguess the direction
of financial markets for any extended period of time. The prudent
investor structures his investment portfolio to perform well in
all economic climates. This is accomplished through balance and
diversification, not knee-jerk reactions.
Although we have long extolled the virtues of tax-free bonds,
we have never suggested that a client devote his entire investment
portfolio to bonds.
The Dangers Of Forsaking Balance
Our readers and clients are aware that we became increasingly concerned
that hype from the major brokerage firms and the financial media
was influencing individuals to forsake traditional investment fundamentals
and become disproportionately invested in equities, particularly
technology stocks.
Unfortunately, the past year has provided a rude awakening for
many investors. We hope the pain will soon pass, but the lessons
should never be forgotten.
Today, all major brokerage firms are actively marketing bonds,
suggesting they should be in every investor’s portfolio for balance,
stability and cash flow.
My father would call this "closing the door after the horse has
already left the barn."
If your stockbroker suggested buying bonds when the Bull was roaring,
call and thank him. If not, you might want to take his bond
recommendations with a grain of salt.
In our March 2000 commentary, we opined that the Fed would win
its war against excessive exuberance and technology stocks would
be the victims. At the same time, we predicted that all brokers
would, overnight, become tax-free bond specialists. We appear
to be correct on both counts.
Bonds Are Not Stocks
If this is true of your stockbroker, and you are contemplating
an investment in tax-free bonds, we suggest you seek assistance
from a broker who specializes in this area.
The process for evaluating bonds is distinctly different from stock
analysis. Tax-free bonds also have characteristics and subtle
nuances that distinguish one from another.
That is why a tax-free bond specialist is always available on our
E-Desk to answer any questions you may have.
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