Financial Planning - How Not to Be Caught in a Sucker's Rally

We may be at the crossroads of economic recovery for in Asia, we have seen steep sell-downs in equity prices whilst at the same time Green Shoots (real or imaginary?) are spotted in all significant global economies. So the idea of taking a break and "going away for a holiday" should be the last thing on your mind right now!

Staying grounded in reality, we must realize that the worst is probably not over yet. After all, firm evidence of improving economic fundamentals is still lacking, or at best, inconsistent.

Most analysts expect the stock markets to consolidate after this 12-week rally. But what will that mean for the STI? Will it head south to 1800, or rocket north to 2800? Right now it's anybody's guess. We will have to sit tight and wait it out. The last thing we want to do is get caught up in a sucker's rally.

Waiting it out is one thing, but how do we do that and remain calm and collected as we look towards a sustainable economic recovery? Well the good news is that if you have already made long-term investment plans, you should still be looking at them as long-term tools. What is happening in the market today is probably (1) short-term and (2) nothing you can control anyway.

Another piece of good news - recovery in Asia is expected to arrive earlier than other regions of the world, though the US may be the first to show signs despite the presence of A(H1N1) flu. However, before this can happen, the following three situations will have to take place:

1) The Global Financial Sector has to stabilize further with more credit flowing into the markets.

2) The US Property Market must stop deteriorating and start improving with fewer housing defaults and increased housing starts.

3) The economic data coming out should continue to be sustainable rather than be one-offish.

In the meantime, while waiting for the three signs to appear, you can look to taking action on the things you, personally, can control.

Rather than "taking a holiday", why not put in place a regular investing plan or RSP (Regular Savings Plan). With this in place, you should be able to control what is controllable and at the same time, reduce unpredictability. If you are not sure how to go about this, seek the help of your financial advisor. After all, they are there for you precisely in these times of economic uncertainty to help you make the most of a bad situation.


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