Once again the United States is beating the war drum, this time on Syria. This is part of the problem of being the world's policeman. Although I still don't understand why we don't demand more for the role, like cheap or free oil, but that is an argument for another day. The problem each and every one of us face is managing the fallout to our finances so our investment and retirement goals and dreams don't get derailed. Your portfolio must be combat ready at all times, especially if you are in that retirement red-zone.
Investors are always spooked by war, especially when it concerns the Middle East. The combination of a Federal Reserve tapering and a war, made August the worst month for stocks in over a year. The market has a number of worries over a strike on Syria: that even a "limited" US strike could escalate, Syria could strike back at one of our Allies, such as Israel, that Russia might get involved (Syria is one of Russia's closest allies and its No. 1 supplier of arms). Putin has warned that if we attack, we might see weapons we have never seen before. All of these are legitimate worries.
In the end however, it is my bet that none of these potential disasters will materialize and this pullback will prove to be just another buying opportunity. However, we are by no means out of the woods yet. Interestingly, August has been the worst performing month out of the year, each and every year, for the past 25 years (1987-2012), and this year will likely make it 26. My concern is that September is not usually pretty either. It has been the 2nd worst month of the year for the last 25 years, and over the last 62 years it is #1.
With earnings season behind us, emotions will be moved by headlines: war with Syria, the Fed's tapering concerns, and another edition of the ridiculous budget negotiations between the White House and Congress. What we have going for us is the strong calendar cycle we are now entering. If we are supposed to "sell in May and walk away," then we are to buy in September for a strong 4th quarter. Along with that, I maintain my forecast that I believe we will have a good end of the year, but that next year will not be kind to investors. In fact, it could be downright ugly, so prepare yourself and your finances now.
The magic mountain our economy faces is the massive baby boom generation, which propelled our economy in the 80s and 90s, is well past their peak spending years and has stopped spending. As I discuss in Facing Goliath - How to Triumph in the Dangerous Market Ahead, for an economy to grow there must be spenders, many more spenders than savers. That will not happen until the next generation of spenders, the echo-boomers born between 1982-1994 like my son Josh, enter their peak spending years. This won't happen for another 5-8 years, so don't plan on a long-term bull market to rescue your portfolio and threaten your retirement dreams.
There will be a time to be invested, and there will be a time to be defensive in the months ahead, and of course money can be made in any market.
With a stronger market ahead, growth investors can use any weakness to buy stocks, particularly in small cap and technology where innovative business and personal solutions will lead to greater efficiencies for years to come. Investors who can withstand volatility with a big potential reward can buy Apple (AAPL), which is coming out with new products this fall, and is sure to be revolutionary: Google (GOOG), which has a new "Glass" product, which is already been improved, that will revolutionize the communications market, and the periphery companies that support these new innovative developments such as Intel Corporation (INTC), Qualcomm (QCOM), Microsoft (MSFT), Cisco Systems (CSCO) and VMware Inc. (VMW). For a more diversified approach, buy the broad market ETFs like the SPDR S&P 500 (SPY), PowerShares QQQ Trust Series 1 (QQQ) and iShares Russell 2000 (IWM).
Gold and silver have had a little resurgence, which looks like just a dead cat bounce. I would sell the metals, such as the SPDR Gold Shares (GLD), Power Shares or Market Vectors Gold Miners ETF (GDX) on any strength.