DON’T PANIC

With just one month left in 2005 the stock market is struggling to keep ahead of the indexed position at the start of the year, with the year to date the market is up just one percent.

"This is a far cry from the mid-20 percent returns of 2002 and 2003 and the over 50 percent return from 2004," he said in an interview.

His advice: Don’t panic.

Over the past few months there were three questions that have consistently resonated from investors, Narine said: when will it end; why is it happening? and what should I do?       

He said the majority seem to focus on the first two while the last question, is often ignored.

"No one knows for certain when the current market indifference will end," said the managing director.

"For that matter it may end just as suddenly as it began and persons standing out of the market at that time may miss the initial part of the next rally which often carries the biggest gains. With electronic trading now in force by the time you realise what is happening and react, the opportunity may have passed."

He noted there were several reasons why the market is currently subdued: crime, capital flight, slow down outside of the energy sector, inflation and interest rates being too low. Any combination of these factors may be affecting the current market environment, he said.

So what should you do? "Everyone wants to first preserve and then enhance their wealth but everyone is trying to do this from their own unique circumstances. Specialised circumstances and goals require specialised solutions, not the one size fits all approach that is often on offer." Narine said one solution starts with asset allocation or how to divide up your money among financial categories ; stocks, bonds, cash and real estate. He said, "Most people seem to think that stock picking and pulling your money out of stocks just before the market tanks and putting it back just before the market booms is the key but getting this timing right is often an exercise in futility."

Asset allocation, he said, starts with an analysis of your financial needs, desires and even fears. Once this is understood then assets are allocated based on achieving your objectives not whether stocks or bond prices will rise and fall.

"It is important for your own sake to sit down even in the face of today’s market uncertainty and establish what you would like to achieve financially for yourselves. Getting assistance from your investment adviser will no doubt help you along."

Using the US market as an historical example, Narine said putting TT$600 into a portfolio that’s allocated 70 percent stocks and 30 percent bonds ,the average return on such a portfolio based on the performance of that market over the past 25 years would be around nine percent annually.

At the end of 30 years your investments would have topped $1 million, he pointed out.

Putting 20 percent in stocks and 80 percent bonds, your investments would instead be worth $588,000.

By investing 70 percent in stocks over a 30-year period as opposed to 20 percent in stocks over the same period you would have been able to increase your wealth by more than one-third, Narine said.

"The difference had nothing to do with when a market slowdown was going to end or what caused the slowdown in the first place. Instead it has everything to do with how you set about investing according to your own needs and objectives."