Flipping Rich

At the end of February, we saw the how the global markets were affected by the news in China.  Then, the subprime mortgage default rates shook up investors’ nerves which leaving many of us wondering where we should put our money now or in the near future.  

Before we look at the market outlook for the year, it’s important to address few facts:

• The Shanghai Index opened at 3041 on 2/27/07, the day before the 8.8% decline.   On 3/27/07, the Shanghai Index closed at 3057.
• Since 1991, the average American home has appreciated an accumulation of 139% comparing to residential properties in Japan declined in value in that same time frame.
• For the past 40 years, the S&P 500 experienced an average of 10.7% return with a standard deviation of 16.7%.    This means that we can expect a gain of 27.1% to decline of 6.3% every 2 out of 3 years or 68% of the time.
• There has not been a 10% correction for the past 5+ years in the U.S. market.
• For this year – choppy markets are expected: http://money.cnn.com/2007/04/02/markets/markets_0450/index.htm?postversion=2007040217

It’s mixed trading day today as a result of some of the recent news and also data reports coming out might effect the economic decisions from the Fed. With all this in mind, I am playing defensive for the remainder of this year.   In the equity area, I look for large cap companies paying dividends.  These companies tend to have stronger balance sheets and cash flow. The other area to note is to add more international exposure – especially in the developed countries like Europe, UK due to stronger estimate growth than U.S. and U.S. dollar continues to weak against the Euro and Sterling. China to me is a roll of dice not only because of the latest news but there’s a lot of work to be done to get their checks and balances together.   I wouldn’t be surprised to see few of the “hot” Chinese companies today turn into another Enro in the near future. Besides, China is considered as an Emerging Market along the line with Russian, Latin Markets for example.   

No matter what the news, stay invested.  Here’s an interesting note to ponder – invest $20 a day into a tax-deferred ( i.e. 401k, IRA) earning 6% annually will accumulate to $1 million in about 37 years.  With an average of 10.7% annual return, you’ll end up with $3+ million!!   That’s the beauty of compounding! Check it out: http://www.moneychimp.com/calculator/compound_interest_calculator.htm