Sydney Morning Herald Article

Photograph: Mt. Lassen in California

The following article ("It's still business as usual for Wall Street") just appeared in the Sydney Morning Herald on-line paper.  The three recent crashes discussed include the 1987 drop when the DJI gave away 22% with a 522 point drop.  Then we had the tech blowup in early 2000 through 2002.  Even worse is the current Global Financial Crisis (GFC).  The writer forgot the savings and loan mess of the early 1990s and the market crash of the late 1960s through 1982.  According to Benoit Mandelbrot, these major crashes are expected to occur about once every 300 years based on statistical mathematics.  However, these "Black Swan" events are much more frequent.  These are the reasons I am shifting several portfolios over to the ITA Risk Reduction model.  Market declines of magnitudes in the order of 30% to 45% are also reasons why I "stress test" portfolios using three Sigma analysis.  Run searches for "stress test" for find some examples.  If you do not find any, I will put up a new one this week so new readers understand what I am talking about when I refer to stress testing portfolios. 

Many of the current problems in the United States can be laid at the feet of the major tax changes in the 1980s and early 2000s.  Those tax cuts are highly correlated with the growing wealth gap we now see between the middle class and the wealthy 1% of society.  They are also connected to both the current deficits and national debt. As former Senator Alan Simpson recently stated, President Reagan raised taxes eleven times as he wanted government to work.

The Sydney Morning Herald (SMH) runs a number of quality articles you will want to read and check on a regular basis.  The link can be found near the bottom of the right-hand sidebar.

Portfolio #5: Ages 66 – 100

Retirement Portfolio

Constructing a portfolio for the retirement years requires one to focus on portfolio risk or uncertainty while not neglecting return. If the portfolio asset allocation plan is too conservative, the return will not meet lifestyle expectations. Inflation is again on the rise and this needs to be taken into consideration when putting together a retirement oriented portfolio.

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