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Coping with Financial Meltdown

With breaking news virtually every day, commenting on the economy could have been a full-time job and not one I relish. Some so-called experts are advising people not to take a look at their 401-k or other portfolios. I strongly disagree. As we approach the end of the year, it’s a good idea to go over where we stand and see if there some intelligent steps to take.

There are just a few days left to take a tax loss. If you have gains you need to offset, get rid of stocks or funds that have bottomed and haven’t shown signs of recovery. William O’Neill, the founder of Investors Business Daily, stated, in effect, that the real test of whether or not to keep an investment is to ask yourself, “Would I buy it today?” If the answer is “no,” sell it. If you don’t need a tax loss, think twice about selling now. Has the market hit bottom? Some say it has, but no one can spot the actual bottom until after the fact.

You may want to keep some stocks that have lost value, especially those that stand to gain going forward. Look at the sectors which appear to be strong, such as those which stand to gain as infrastructure projects in the U.S. get underway. Biotech firms have also shown strength recently. Some experts are recommending gold futures and gold stocks as a hedge against the dollar.

Closed-end funds have been badly beaten. Many are selling at deep discounts to their underlying net asset value and some with unheard of dividend yields of 20%, 30% and even more. Now more than ever, it pays to be cautious about new investments in CEFs or in mutual funds. Check out their largest holdings and their strategies. For CEFs, you can find more information at etfconnect.com.

Sometimes the smartest move is no move at all. Do your own due diligence, weigh the opinions of others carefully and act only with extreme caution. Good luck. We’ll all need it.

Note: Michael Lewis, who writes more interestingly about finance than just about anyone, has put together a book, comprised of articles from various people including Nobel laureates Paul Krugman and Joseph Stiglitz as well as newspaper and magazine journalists. Included are four major episodes: the 1987 stock market crash, the 1997-98 emerging-markets crash (called “Foreigners Gone Wild”), the dot-com meltdown and finally the current housing/credit/stock market collapse. Each section has an introduction by Lewis, followed by entries written just before everything blew up and finally an analysis of what happened.  It’s called Panic: The Story of Modern Financial Insanity