Investors have experienced the most dramatic upheaval in capital markets since the Great Depression. On several recent days your portfolio has probably experienced tremendous swings. However, thanks to prudent diversification that includes portfolio insurance in the form of gold, cash and short-term bonds, and most importantly by avoiding needlessly complex investment vehicles, we are confident that our readers and clients have fared far better than most.
We realize that good relative performance may be of little consolation when your portfolio’s dollar value may have fallen precipitously. But you should be encouraged to know that by choosing our approach you are well poised to participate in a new and more competitive era in financial services. Our clients, and we suspect most of our readers, do not hold their financial assets with wealth management units affiliated with Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs or Morgan Stanley, which have either declared bankruptcy, been bought out by other entities or have been transformed into bank holding companies.
Our recommendations never included the various mortgage-backed or other derivative products that have brought down these once-venerable firms. Our clients’ assets, and hopefully those of our readers, are instead held by discount brokers such as Charles Schwab, TD Ameritrade, Fidelity and others. These firms have avoided the entanglements of investment banking and relying on profits from proprietary trading, choosing instead to focus resources on providing account services for individual clients.
Wary investors are fleeing major brokerage firms that have mismanaged their own assets. Clients are said to have left Merrill Lynch, taking $5 billion with them; $11 billion has left Smith Barney while $17.6 billion has fled Wachovia. During the second quarter alone Fidelity Institutional gained $16.7 billion, while Schwab Institutional picked up $14.5 billion. It would appear that discount brokers that work with independent advisors are benefiting from this exodus.
We submit that September 2008 marks the beginning of a new era for individual investors, and you are poised to reap the benefits. The upheaval on Wall Street is a turning point in the long running war between traditional broker-dealers and active managers on the one hand and discount brokers and passive managers on the other. High fees, fat commissions, stock picking and market timing will give way rapidly to fee-only advice, minimal trading costs, index funds and structured portfolios.
Also in This Issue:
Alternatives for Cash Equivalent Assets: Playing it Safe
Treasury Guarantees Money Market Funds
Frequently Asked Questions from the Treasury’s Temporary Guarantee Program
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles
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