A Compelling Correspondence 2

I recently received a letter from a subscriber to my Successful Investing newsletter that I wanted to share with you.

Dear Doug,

I hope you have an answer for me.

In July of 2007 I stupidly broke just about all of your investment
rules. My wife and I invested a total of $250,000 with Northwestern
Mutual Investment Services — an IRA for each of us and a regular mutual fund investment for her.

Though we have three accounts with this firm, the money is in just two funds:  Capital Income Builder Fund and Income Fund of America. At present the accounts are worth about $160,000.

My question is, should I sell these funds and put the money in cash, or wait and hope to make back some of our losses?

Sincerely,

A frustrated investor

Frustrated indeed, and I suspect that this subscriber isn’t the only one holding on and wondering what to do about big losses. Fortunately, there are a few ways to help remedy this situation.

My current outlook on the market is that I am anticipating higher prices
in the short-term. The markets still are deeply oversold, and we may get a strong rally through the end of the year.

In my opinion, this rally should be viewed as an opportunity to lighten up on some of your invested positions. The market metrics are still very poor, and that means we are likely in for more trouble in 2009. So, when the market does give you a chance to sell into strength, take it.

Finally, my frustrated subscriber was sold very high-fee, high-commission products and, judging by what he’s told me, he was sold these products without any risk protection in place. Let this be a lesson to you not to fall into the trap of listening to the biased advice of a broker who is paid with commissions.

Remember that only your judgment can prevent you from making a big mistake, so always exercise that judgment with ruthless logic — and with an unflinching allegiance to reality.

To find out how my Successful Investing advisory service can help you to avoid costly investing mistakes, click here.