Active Portfolio Management as It Relates to the Tragedy in Japan

Over the past week, financial markets worldwide have been shaken. This past Wednesday, markets plummeted for the third straight day on fears that a partial meltdown may have resulted at a nuclear plant in Japan. As a result, stocks erased nearly all of their gains for 2011. The Dow lost 3.6 percent over a three day period, its worst three-day loss since July, 2010.



At the same time, Treasury prices jumped and yields sank to their lowest levels this year as investors ran to investments perceived to impart more stability. Bill Stone, chief investment strategist with PNC Wealth Management, stated "Investors are moving away from anything that has an element of risk with it because they don't know what's happening in Japan."



In addition to the Dow losses, the S&P index dropped nearly two percent and was indicating a loss for the year when it had previously been up as much as 6.8 percent back in February. At the same time, the Nasdaq Composite Index went down 1.9 percent to 2,610, translating to a slide of 1.4 percent for 2011.



Yields on the 10-year Treasury note fell as low as 3.15%, the bottom level this year which, if there is a silver lining in this cloud, lowered already low mortgage rates slightly. But in the face of a Commerce Department report that new and existing home sales were decreased for February, it is questionable that the minute decrease in mortgage rates will have much of an force on the housing market.



Coupled with these losses was the steep incline in fuel prices in February along with a reported 4% raise in the cost of food- the biggest one month rise in the previous 36 years. Shares of companies affected by the rise in food costs also fell on this news.



Current world situations support the necessity for active portfolio management in financial and retirement planning. As stated in previous writings, the key to appropriate wealth management lies not only in finding the "winners" in the market but also missing the sharp declines and knowing when to move and shift investment strategies accordingly. Although active portfolio management is not a guarantee of protection from market fluctuations, it can sustantially reduce the hazard of loss.



A portfolio worth $100,000 last week may have easily lost 10% of its value in just 4-5 days. As a result, that portfolio would now have a market value of $90,000 and require more than an 11% increase just to get back to the original $100,000. Active portfolio management could have prevented much of the loss by anticipating market shifts based on world sentiment over the crises in Japan. Now that we are beginning to see a correction in the markets (the Dow is up 144 on the day of this writing), active portfolio management could have resulted in profits during the past seven days, rather than panic.



Working with an veteran and dedicated financial advisor is the only way for you to reap the benefits and avoid the pitfalls of market volatility- a volatility that is not liable to disperse any time soon.



Investment Advisory Services offered through John P. Dubots Capital Management, LLC.



Learn more about active portfolio management and its benefits by contacting John Dubots, Temecula retirement advisor, with Dubots Capital Management. Dubots has over two decades in the industry and will provide a free consultation to answer all of your portfolio management questions.