10 Steps to a Profitable 2008

We appear to have reached what could be a turning point in the cycle. Companies are reporting earnings, the stock market has bounced off a recent bottom, and interest rates remain low just as the economic data are looking a bit more dire.

I'm sure that I don't have to give you chapter and verse on how we got here, given the incessant squealing of various TV pundits about the housing bubble, the mortgage securities "crisis" and the credit squeeze. Suffice it to say that since the markets peaked in October, they've been on a roller coaster, hitting a nadir on March 10, when the Dow Jones Industrial Average closed at 11740.15.

Yet, for all the negatives, this is definitely not the Depression of the 1930s or the stagflation of the 1970s. Since the March lows, we've been making a comeback. The markets have already clawed their way back a bit, particularly among large-caps. As some first-quarter earnings reports made abundantly clear, American businesses can be divided into two camps—those that are growing their businesses, particularly through exports, and those that are not. They aren't all falling off a cliff.

That's why I've been telling folks who'll listen that the single best thing you can do right now is to turn off your financial news channel or, at a minimum, accept it for what it is, which is a daily dose of info-tainment that should not be taken as investment gospel.

So, today I want to share my 10-step program for dealing with the second half of 2008.

1. Turn off the boob tube and stop listening to the talking heads. They're more interested in bumping up their media ratings points than providing solid investment advice. Even the biggest bear on the economy, New York University economist Nouriel Roubini, who has been getting tons of airtime and scaring the bejesus out of investors with his paper listing 12 reasons why we're in for one of the worst financial crises of all time, told Money magazine he remains fully invested in equities.

2. Make sure you've really diversified your portfolio, with big slugs of both domestic and foreign equities. You can do this with three of my favorite Vanguard funds for 2008. One could be the perfect core fund for someone who can't afford a plethora of fund minimums. Another is my top momentum pick for 2008. And the third is an ETF that can boost your returns. Follow this link to get my complete analysis of each.

3. Don't time the market. You can't sell out of the market before it goes down and get back in before it goes back up. Market-timing is a fool's game. I can already tell that at least two clients of mine demanded they be sold out, only to watch the market move lower initially, then much higher than where they started. Neither has called to get back in, and I'm guessing it's simple embarrassment. Not only will they have to pay taxes on the gains they cashed out, but now their actions are looking, well, silly.

4. If you've got some cash, put it to work now, not when you're assured the markets are going up and everything looks perfectly calm and safe. Remember that you were saving it for a rainy day? Well, it's not pouring, but it's also not bright and sunny on Wall Street!
   

5. Reduce portfolio risk if you're sleepless. Not everyone is made of the sternest stuff. If you've been stressed by the market turmoil and lie awake worrying about it, then maybe it's time to take some risk out of your portfolio permanently. To do that...
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