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March 16, 2012

A “balanced” view of the economy.

In my view, David Wessel’s column in the March 15th edition of the The Wall Street Journal provides a realistic and balanced view of the economy.  The second paragraph starts: “Watching incoming economic data these days is like flying an airplane with two airspeed indicators.  One says you’re picking up speed : the other says you’re not.” 
The last paragraph states: “The U.S. economy feels better than it did a few months ago.  Signs of strength are proliferating.  That’s undeniable, and encouraging.  but there are too many warning lights blinking in the cockpit…”
Looking back to the fluctuation in the stock market in 2000 and 2007-2008, few “knowledgeable” people saw the drop coming.
Among the lesson learned is that an investment portfolio should consider you financial goals, the timing of the needs and many other factors unique to your situation.  In addition to assessing the holdings in the portfolio you must assess the changes in the other factors.  Portfolios should be constructed for the long term.  Portfolios should be monitored and evaluated periodically.  The make-up of the portfolio, allocation, should be based on the above factors.  It should also recognize that know one knows the future.  The allocation should not be kept the same.  It needs to be adjusted to reflect the changes in all the factors that can be identified.  This includes recognizing that you will never be able to identify every factor or every consequence of the factors you can identify.  
For most people, the monitoring and changes should be reviewed annually.  That is, in addition to life events and other significant and material changes. 
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