700 Points Were Added To the Dow Last Week
700 Points Were Added To the Dow Last WeekIt was a feel good week last week in the stock market. The Dow added 700 points last week, which was special after recent previous weeks were horrible with the Dow losing much more. While the Dow climbed last week most of us are still climbing out of the holes created with the recent previous losses. And the Dow increased during consecutive days which was also applaudable.
I'm not a stockbroker but some stocks still seem very risky such as the banks and the American auto companies. Many of the banks reduced their dividends to a penny per quarter including General Electric. The President and Congress has not said that they will guarantee interest or dividend payments or pay 100% par on the bonds from those companies either. Some other corporations seem to be in trouble with debt to be paid soon and without enough cash on their balance sheets. The price of oil is lower than it was so some of the oil companies will not earn as much for the time being as they did when the price of oil was at its peak. The rating companies did not do such a good job rating the now so called toxic securities. Personally, I don't think AIG stock or bonds are worth pocket change.
It is a very confusing time to buy securities as an average or below average American investor. One thing for sure very short term FDIC insured bank CD's are better than money market accounts, zeros or regular Treasuries because they pay a little better. Traditionally bank CD's are guaranteed in amounts up to $100,000...but today the maximum is $250,000 until December 31, 2009 when it reverts back to the $100,000 amount. CD's should be bought in monthly or bi-monthly ladders to take advantage of interest rate changes. The secret is to buy them for the short term less than a year because interest rates may go up as the Bush Recession dissipates and things become better in the economy in order to combat inflation. I have almost 10 small CD's all maturing on different days all within the next 6 months.
Trillions of dollars have been lost in stock and bond prices during the past several months and there really looks like there are some real bargains out there. The market is smart and many companies deserve for their securities to be low priced. But there are some corporations that may have been unfairly priced lower. The secret is to find those companies with excellent balance sheets and with continued growth in profits.
I'm slowly buying back into the market with companies that pay high dividends that look like they have no need to cut their dividends. I look to gain not only from increases in the prices of the stocks but also with nice periodic dividends. Maybe I can reinvest the dividends.
Personally, just as the market went down so much so fast, I think it will climb up rapidly, but not as fast as it went down. For many of us that lost 30% or more of the total worth of our investments, we have to be in the market in order to recieve the hopeful gains of the improved future market. Many people enjoyed the 700 point rise in the Dow this week in the increased prices of their stocks and bonds because they were not on the sidelines.
The market is always a roller coaster, but as the economy shows improvement the stock and bond prices of solid companies should rise.
Most of us should make the market our hobby and learn as much as we can about it. We should subscribe to financial newsletters and magazines. We should read books on Investing. We should join investment clubs. We should read the financial newspapers. We should take advantage of training offered by our brokers.
Diversity is critical. As we become older we should invest in highly rated bonds more than highly rated stocks. People in their twenties and early thirties can take more risk because they have longer time horizons before retirement (I do not think that the prices of many great stocks and bonds will go much lower than they are today and will look like real bargains in the future).
For those uncomfortable in the stock and bond markets, FDIC insured bank CD's up to the maximum guaranteed limits offer the best very short term return and guarantee of principal.
For others, do not jump into the market, but spend the time doing homework on a security you are interested in buying to make sure it is for you.
Hopefully the Dow climbs a few hundred points each week as the economy improves. I think it will more often than not in the near future.
posted by God Bless America - Bob @ 4:28 AM
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