The Dow Is Falling – Part II

by | Jul 31, 2007 | Investment

yawn.jpgWhile the rest of the investment world had a frenzy over the stock market decline last week, KFG clients took the decline in stride….maybe with a yawn! We’ve “been here and done that.”

Indeed, the Dow declined about 5.2% from its all-time high on July 19th. However, a portfolio with asset class diversification was down around 3.5%. That is 33% less of a decline than the Dow.

What is asset class diversification? In addition to the usual asset classes of US and international stocks and bonds, a diversified portfolio will also include real estate, commodities and natural resources, market neutral funds, junk bonds, and Treasury Inflation Protected Securities (TIPS).hang-on.jpg

KFG clients have heard me say for years that the recent markets are doing far better than what is sustainable over a long period of time. Good investors know that what goes up will not continue to go up forever. Personally, I think another 5% to 10% fall in the Dow would be a good thing, washing a lot of optimism out of the market and building a solid foundation for another advance. But it really doesn’t matter what I think, does it? The market will do what the market is going to do. We just need to have a well-diversified portfolio and hang on for the long run.

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