Staying Afloat During Turbulent Times (As printed in the June 2009 publication of the Muslim Hoosier Magazine)

People have turned to various avenues of investing in hopes to create riches. You

have recently minted college graduates investing in their company’s 401k plans,

working professionals with several years of experience finding aggressive ways to

grow their hard earned money and soon-to-be retirees making sure that they will

have enough saved away to last them the rest of their lives. We may not all be on

the same path in our lives, but we do simultaneously feel the effects of

unprecedented market movements.

No one ever invests with the intention of losing money, but when that unfortunate

time comes, very few are prepared. For a while everything appeared optimistic

and we were fed false hope that the stock market would not collapse. The

economy pushed us full speed ahead while not allowing us to realize the potential

downside. The 1990’s brought innovative technology and introduced the global

economy to the internet. This new relationship led to the start of a trend and yet

another “bubble” in our era. Day-by-day, companies which promised the world

formed at a faster rate and pulled investors into that technology bubble. The

explosive effects of the technology boom were highly visible in the growth of the

stock market, but many failed to realize this growth was not sustainable. Despite

holding little book value, high enthusiasm and consumer confidence increased the

market value of these companies to unrealistic levels. Unfortunately, a company

needs true value and cannot be weighed solely on enthusiasm.

Once expectations became realistic and the true worth of the firms emerged, the

bubble popped. At the turn of the century, the DOW dropped over 3,000 points

within a matter of four months, the September 11th terrorist attacks took place, and

several gigantic firms, such as Enron, started to collapse, causing accounting

scandals to spread fear and uncertainty throughout the country. We now face a

recession which has been compared countless times to the Great Depression and

the infamous recession of the 1970s. The unemployment rate is climbing to new

heights and it is becoming common to have several friends out of work for

months. Unfortunately, the first decade of this century has been anything other

than helpful in our efforts to cultivate wealth.

Investors have many reasons to panic; a volatile stock market and a housing

market which continues to deteriorate and has yet to find a bottom. During such

times every investor wants to know what they can do to protect and create wealth

for themselves and their family. No one can predict the future, but we can plan

ahead accordingly.

A popular adage, “it’s too good to be true,” should resonate in the minds of every

investor when they come across persistent salesmen with great presentations who

guarantee soaring numbers. There is never a guarantee when you invest, so you

must be prepared to perform some form of due diligence and take your emotions

out of the process – safe, not foolish investing. Unless you have both the time and

skills needed to properly select various assets and position them accordingly, all

while insuring that you are keeping up with both regulatory and market changes, it

may serve you well to go with a professional. These individuals have access to

research and tools needed to optimize your capital using a systematic approach to

Saliq J. Khan

Editor-in-Chief

Saliq Khan is the Editor-in-Chief

of InvestmentHead Market

Commentary, a weekly market

commentary report. A Chartered

Retirement Planning Counselor,

Mr. Khan specializes in individual

and corporate retirement planning,

pension plans, asset management,

investment strategy, income taxes

and estate planning.

InvestmentHead publishes market

commentaries for the individual

investor to gain market

knowledge. Publishing weekly

market commentaries, specialized

reports and charts,

InvestmentHead facilitates the

process of investors seeking to

gain investment knowledge and

utilizing it to better serve their

individual investment goals.

investing while removing emotions from the process.

Many times the investor puts full faith in their advisor and presumes that

everything will be all right. This is not the approach an intelligent investor should

take. To protect your wealth, you need to understand how it’s created. Despite

having lost over 50% of the value in your portfolio, now is not the time to sell.

The selling process should be done at the height of the market or as the market is

coming down, not when the market has seemingly reached a bottom. Buy high-

sell low strategy has been the cause of collapse of many investment portfolios.

You wouldn’t buy a house when it’s extremely expensive and sell it when it loses

all of its value, so why do it with your investment portfolio? There are great

investment opportunities available and now would be the time to think about

buying. The only time an individual should sell their holdings is if it has an

adverse affect to their health or the person has a hard time sleeping due to the

stress of their declining investment portfolio. It’s better to take a loss than to

jeopardize your health.

Due to the gravity of the situation in the economy, holding cash has seemed very

appealing for the last year, but you can’t get rich holding cash. As the economy

reaches a bottom and the risk appetite returns, investors should look at assets that

can generate the returns needed to reverse the negative effects of the last year and

a half. Bear in mind that this will not happen overnight and you may not gain

back all your losses. Careful screening of securities can lead to investments that

may have the potential to endure market gyrations, volatility and fraudulent risks.

Dollar-cost averaging is a method which can aid this process, by making regular

deposits into your investment accounts to take advantage when stock prices

decrease. Countless investors try to time the market when determining when to

jump back in, but missing just a few best days of each year can significantly

reduce portfolio returns. The chart below is a prime example of why investors

should carefully review their fund selection and diversify them in order to

capitalize on discounted firms.

Pitfalls to avoid and strategies to deploy:

� If the majority of your investment capital is invested in the firm which you

work for, look to diversify that capital. You don’t want to be in a situation

where your company goes bankrupt or loses the value of its stock

dramatically.

� Don’t take funds out of your retirement accounts until you’re of age 59 ½.

You will generally be subject to an additional tax of 10%, unless you

qualify for certain exceptions.

� Don’t make radical changes to your investment portfolio except for when

your investments are performing in a manner in which you are unable to at

least mimic a certain benchmark.

� If you need liquid cash within the next 5 years, you shouldn’t be heavily

invested in equities. You don’t have time to play with the ups and downs

of the stock market. This applies to items such as retirement accounts,

college tuition, buying a home, etc.

� Government bonds provide the safety needed in such turbulent markets,

but may offer rates which aren’t enough to cover inflation.

� Today’s winners may not be the winners of tomorrow.

� Go back to the basics and perform the necessary due diligence on the

funds and your trusted advisor. This will mitigate the risk and the pitfalls

we have seen recently.

Disclosure: No positions held

© 2009 InvestmentHead.com. All Rights Reserved. The opinions expressed here are solely that of the author. This is not intended to be relied up as a forecast, research advice,

recommendation, or solicitation to buy or sell any securities. The opinions expressed are as of the date above and are subject to change. The information is derived from sources deemed to be reliable, and are not guaranteed as to accuracy. The information contained in this paper is based upon or derived from information generally available to the public

from sources believed to be reliable. Past performance is no guarantee of future results. Reliance upon information in this material is at the sole discretion of the reader.