After more than a few hours visiting with clients these past few days I have determined that many of the questions can be whittled down to but an important few.

AAA Ratings: The stock market does not like uncertainty. Most often, during times of high uncertainty, people flee the market to safer havens. Friday after the market closed, Standard & Poors downgraded the U.S. debt from the highest rating of AAA by one notch to AA+. This was not an insignificant event – in fact, it is a first in American History. Yet the initial verdict is good. The real fear was a massive sell-off in U.S. debt securities. And because the U.S. Treasury bond market is so massive, we simply didn’t know what a sell-off of great magnitude might mean. Instead, however, during market hours on Monday people flooded the U.S. treasury market with new money as if it were a rare safe haven. Treasury prices rose and interest rates fell. This was the opposite of what many of us feared. People simply haven’t given up on the U.S. bond as a place to park money during scary and uncertain times. Good news… we’re not in such unfamiliar territory after all.

Economic Slowdown and the Earnings Tug-of-War: There is a tug-of-war going on between the fears of a slowing economy and outstanding corporate profits. These past few weeks there have been some clear signs that the economic recovery is sputtering. Many respected economists have revised downward their forecasts for economic growth both in the U.S. and worldwide. Slower economic growth often translates into slower growth in corporate profits. And slower growing corporate profits should signal some decline in stock prices. Couple this with the fears of the previously mentioned U.S. debt problems AND the fact that the “pendulum” of stock markets often swings significantly past “reasonable” and we have a stock market down nearly 20% over the past few weeks. These past two weeks the fears of the slowing economy have clearly trumped the excellent earnings season we are just now wrapping up. Many people thought earnings expectations were too high to begin with, yet nearly 80% of the S&P 500 companies have exceeded expectations this past quarter. There is no question that there are many corporations that are healthy, profitable, and growing stronger. And, as I’ve explained to many of you, they are getting much of their growth from outside the United States. Even with declining expectations in the U.S. economy, there is reason to believe that growth in other countries can continue to fuel growth in some well-positioned and well-managed companies in the years ahead.

What to Do: Without doubt the greatest question people are asking is, “What should I do? Should I make changes?” Great question! I will answer this in two parts:

Correct Allocation – The question everyone should be asking me regularly is, “Given my risk profile and my goals, am I appropriately allocated among stocks, bonds, and cash?” The answer to this is not a function of the market ups and downs, or headlines and uncertainty. It is primarily a function of your investment goals and your risk tolerance. Are your goals the same as they were when we last visited? Do you need income or are you primarily concerned about growing your money for future objectives? If the goals are the same and your current allocation is appropriate for your goals, then this is not a time to make changes.

Opportunities – It is actually times of turbulence that present some of the greatest opportunities. Once we confirm that you have the right model or allocation, we can then work within that model to make the most of these opportunities. We don’t plan to let these openings slip us by. We are already in the process of rebalance work to take advantage of the opportunities being made available.

Summary: We have been here before. Many of you have been through this with me more than a few times. For those willing to stay the course with using a diversified portfolio of well-managed funds we have learned that we not only survive these difficult markets, but often benefit from the opportunities created in the chaos. The scenario may be somewhat different each time but the same rules apply. Thank you for allowing us the opportunity to partner with you during these times in order to not only ride out these storms, but genuinely make the most of them. Please keep writing or calling with your questions.