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December 27, 2010

“The 2011 Economic Outlook—and What It Means to You”

Alan Murray’s Dec. 26th articles in the online Wall Street Journal highlights some of the clouds over the economic outlook.  Paul J. Lim’s Dec. 26th article in The New York Times, “Why Investor Optimism May Be a Read Flag” is concerned about investors attitudes.  His article includes:  “In October 2007, a survey by the American Association of Individual Investors found that 55 percent of investors were bullish: in the 12 months that followed, the S.&P. fell 37%.  Similarly, in March 2000, investor bullishness reached 66 percent. And a year after the fact, stocks were down 25 percent.”
Studies in Behavioral Finance continue to find that investors’ timing is often wrong.  When the market is going up, many people buy.  Those are generally the same people that sell when the market goes down.  Markets past behavior does not always indicate how the market will move in the future or when it will move. 
Investors need to know where they want to be, understand their risk for loss, understand their time horizons, and much more.  They should structure their portfolios to their individual situation.  Monitoring and adjusting for the long term are actions that will increase the achievement of their goals.

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