October 19, 2008: What Is The Investor To Do?

The past few months have certainly been a train wreck for most investors. Professional money managers and individual investors alike - and certainly the overwhelming majority of passive investors whom have contributed through thick and thin into their mutual fund retirement accounts, have suffered. Emotions ranged from the initial "buy on the dips" to fearful watching of investment banks and Freddie and Fannie imploding, to anger at the home loan practices dictated by Democratic Party social engineering and the Republican failure of leadership to stand up to such foolishness, to abject fear as the market tanked, to skepticism at a government bailout of poor business models, to brief periods of optimism as the market rallied hundreds of points, to despair as the market tanked yet again. And the roller coaster ride continues.

What is the investor to do?

If you were wise not to throw in the towel on your quality securities and selectively sold less stable investments to raise cash, you are probably in a minority. Congratulations. If you did sell out of fear, that is understandable, so long as you do not sour on the stock market or other potentially lucrative investments in the future. And the future is now.

As things stand, I would put idle funds to work in the following way:

Begin to look at stocks earning 5% or greater yield that are traditionally strong companies with earnings and the ability to maintain or increase the dividend. I am providing screening lists regularly of ideas (not recommendations). Yield is the definitive indicator for the astute investor. You have downside protection and cash returns to satisy until the market rebounds.

Look at ETFs such as the PowerShares Financial Preferred Portfolio (PGF), with an 11.56% yield trading about $13.25/share. Vanguard's Short Term Corporate Bond Fund (BSV) is trading on the low side yielding a notch over 4%. Avoid being so conservative that you plunge into almost negative yield treasuries. High Yield ETFs are too speculative for me at this time.

Absolutely, positively begin to think about being a landlord. Rental real estate remains a superb opportunity for income and tax advantages (regardless of whether "That One" or "Yosemite Sam" gain power).Buying right is key. Tenant pools are expanding. For the first time I can recall, all properties under my watchful eye have a waiting list of renters. This covers all rental classes, from luxury to Section 8 government subsidies to common rentals - single or multi-family.

Be mindful that investors that place too many assets into taxable entities are going to be hammered by the anticipated Democratic Presidential, Senatorial and House of Representative victory beginning in 2009. Absolute power corrupts absolutely. And I am especially cognizant of how Chicago-style Democratic politics are played. Investors had better begin to invest in tax-advantaged instruments. Master Limited Partnerships, Tax Credit Housing, general real estate,low-cost annuities, life insurance and trusts should be on your radar screen. It is my belief that financial planners will begin to focus more on tax avoidance than security recommendations, just as they did in the era pre-Regan.

We will hear many sages giving precise instructions on how and when to invest during current turmoil. Remember, almost everyone is paying their mortgage, curbing their debts, making prudent family spending decisions and intent upon making their lives and their family's lives better in this, the greatest country on earth. Invest your hard-earned money in a deliberate and thoughtful fashion, letting it work for you instead of running away into someone else's greedy pocket.