November-December 2009 | STRATEGIES FOR A VOLATILE MARKET

STRATEGIES FOR A  VOLATILE MARKET

MONEY MATTERS

STRATEGIES FOR A VOLATILE MARKET

Position your portfolio for future growth through a series of opportunities

The unparalleled volatility in today's market has affected all of us in myriad ways. From planning for retirement to putting kids through college, market uncertainty has impacted how we think about our savings and investments. At Merrill Lynch, we hold firm to the idea that now, more than ever, proper diversification and long-term strategy is critical. Simply put, we believe there is a three-pronged approach to building long-term wealth, which has been proven over time and should be considered the cornerstone of any investing strategy:  
 
1.   Take a long-term view      
2.   Compound dividend income 
3.   Maintain a well-diversified portfolio  
 
Even in today’s volatile markets, there are likely opportunities that can help position your portfolio for future growth. Over the last 50 years, every period of financial market volatility has provided a signal that leadership and growth stories within the financial markets are changing. Based on the insights from our firm’s research analysts and strategists, they indicate that investors should not expect the credit-driven stories of the past 5 to 10 years, like emerging economies, to resume their leadership. They believe the new leaders are likely to come from defensive, cash-flow stable sectors such as consumer staples and health care, as well as developed markets.  
 
Above all, there are a few key points we recommend you remember during this volatile time: 
 
Stay the course and do not panic. A long term, well diversified investment plan can help achieve goals in times like these. Total diversification helps limit downside market capture. Stock diversification should consider market capitalization (large, mid and small), style (growth and value) and geography (domestic and international). Similarly bond diversification should consider duration (short, intermediate and long), credit quality and taxable-tax free. Look at the big picture and don’t let short-term events or emotions guide your investment strategy. We encourage our clients to be disciplined and level headed to assure them that historically, long-term investment strategies have been the safest way to weather the storm.  
 
Rebalance your portfolios at least annually, or as significant market volatility dictates. Rebalancing is a discipline of selling stronger performance assets and reinvesting in assets whose prices have been weak, but may be attractively priced and poised for a rebound. 
 
This is a discipline that guides our clients to sell winners and reinvest opportunistically.  
Investment strategies should match your tolerance for risk, your personal time horizons and your preferences for liquidity/illiquidity to achieve your goals. In addition, investment strategies should align with overall asset allocation, and should reflect how investors balance risk and return.  
 
Focus on overall results - not just segments of portfolios. While certain segments may be up or down substantially, it’s important to look at performance of the portfolio overall. We 
believe that as long as you’re on the right path that matches your objectives, you should stay the course. 
 
Finally, speak with your financial advisor about your long-term strategy. He or she can help you identify any areas of weakness in your portfolio and discuss what steps you can take to help secure your overall objectives.
 
Diversification, rebalancing and asset allocation do not ensure a profit or protect against a loss in declining markets.
 
 
Ashok Rajan is Director of GWM Investment Management & Guidance for Merrill Lynch. 
 
For more information, contact Merrill Lynch Financial Advisor James R. Giles, CFP ®, CRPC ®, CSNA of the Ocean City, Maryland office at 410-213-9097 or http://fa.ml.com/jim_giles.
 


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