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Over the past few months, investors have been watching the value of their portfolios decline. Most have remained hopeful that this would be a temporary situation and stocks would come roaring back as they have many times in the past. Now, each day that goes by more and more investors realize that this correction is probably going to get worse before it gets better. They are wondering where they should put there money to prevent further losses.

During strong bull markets, it is easy for almost anyone to think of himself as an investment genius. A bull market is like a rising tide: anything that floats is going to go up even if it is just worthless junk. When the tide eventually goes out, you want to make certain your boat is in a safe harbor so you don’t end up stranded on the exposed rocks.

A decade or so ago, mutual funds that short the stock market were introduced and were hailed as the salvation for bear markets. At last investors would have a vehicle that allowed them to make money in down markets. Today there is a wide range of short funds that allow investors to play the downside of almost any index or sector. Unfortunately, these funds have not proved to be a bear market panacea for investors. It is still difficult to make money during a correction because down markets do not behave like strong bull markets. They tend to be more volatile and trends are less pronounced.

So for investors who don’t want to just sit on the sidelines until this bear market runs its course, what are the investment alternatives?

Over the past six months, virtually every segment of the market has been in a downturn. That is an unusual situation that rarely occurs except during serious economic recessions. Chances are, you are already aware of the sectors that are advancing. Below is a chart that shows the current situation. The black line is the Nasdaq and is included to show how the general equity markets have fared. 

Representing energy, the strongest sector, the red line is iPath S&P GSCI Crude Oil Total Return Index ETN (OIL).  Doing almost as well and with a less volatile trend, precious metals are represented by the gold line– StreetTRACKS Gold Shares (GLD). While both of these sectors have done well over the past six months, they are probably too volatile for most investors. Often they are not even an option. An investors moving among the fund choices in his 401K, for example, might not even have an energy fund or precious metals fund to choose.

The strongest sector that has a reasonable level of volatility is bonds. In the case bonds are represented by the blue line which is Lehman Long-term treasury SPDR (TLO). Strategis Financial Group client assets have largely been invested in bonds since fall of 2007 and have produced decent returns since then when compared to U.S. equity markets. Some assets have also been allocated to gold and to energy.

Today the major indices fell to new 52-week lows. In fact, the Dow is at the same level as in November 2006. The Nasdaq and the S&P 500 are both at about the same levels as at the end of 2005.

With Federal Reserve Chairman Bob Bernanke earlier this week telling Congress that the economic situation is likely to worsen, there is little for investors to be encouraged about right now. Today the Federal Reserve reported that Americans’ percentage of equity in their homes fell below 50 percent for the first time since 1945. That certainly is a bad sign since homes are the single biggest source of wealth for most American families.

Unfortunately, we are probably just in the early stages of this economic downturn and there will be more bad news to come.

F.S.

If you would like investment strategies that attempt to minimize risk but still provide the opportunity for solid growth, check out the offerings from Strategis Financial Group.  For information, call 800-279-3377.

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