If this is a sucker's rally, I'll take it

A globally diversified portfolio of low cost index funds, conservatively invested 60 percent in stocks and 40 percent in bonds, is up 20 percent year-to-date. How's your portfolio doing?

Probably not very well if you listened to "market beating" brokers or to much of the financial media.

During this period, the financial news has been dismal: The bankruptcy of Chrysler and General Motors; Madoff's sentencing; sabre rattling by North Korea; downgrading the credit of (gasp!) Berkshire Hathaway; the sad spectacle of California issuing IOU's to stave off bankruptcy. And don't forget the swine flu pandemic.
An article in the Financial Times on May 8, 2009 expressed the views of many: It was grimly entitled: On Wall Street: Beware of the Sucker's Rally.

Over at Barron's, financial columnist Michael Kahn agreed. In an column dated May 20, 2009, he analyzed a complex set of technical evidence and concluded that he was "highly skeptical" of a continuation of the bull market. The title of his column says it all: This Bear Should Stay Well Fed.

Many brokerage firms hopped aboard the "sucker's rally" bandwagon. In late March, 2006, Jason Todd, a portfolio strategist for Morgan Stanley, is reported to have told investors to sell, stating: "Even under the most generous of assumptions, we cannot see large upside for the S&P 500 above the 825-850 level."

The S&P 500 is currently at 1068. I guess the assumptions exceeded "most generous."

The bear is currently starving, along with the investors who relied on this advice.

No one knows where the markets are headed. "Market beating" brokers and advisors and financial pundits pretend they know, but they don't.

Investors who rely on them continue to lose their money.

Dan Solin is the author of the newly published book, The Smartest Retirement Book You'll Ever Read (Perigee Books 2009). His prior books include the New York Times bestsellers,The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read.See SmartestInvestmentBook.com..
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