These are worrying times for investors, holders of pension funds, pensioners dependent on fixed incomes and for anyone else with some money that they want to preserve, let alone see grow in value, however modestly.

Over the last fortnight or so, the question on the minds of many of the commentators, is whether the stock market rally, which began in March, is coming to an end?

There’s no consensus on this – even among those non-mainstream media and private newsletter writers that I subscribe to.

However, many of those who accurately called the original collapse, are now suggesting that stock markets seem poised for another fall, perhaps to a point even lower than was hit last March.

No-one knows the future; the best analysts and advisors admit that.

But their reasons for believing that the market recovery is not sustainable seem more compelling than the empty forecasting that is now going on.

This is, of course, being led by bank and stockbroker economists and analysts, all of whom are paid to encourage customers to spend and invest in the stock markets or in investment funds they recommend. Their prime role is to help make their employers rich, not you.

For example, how by anyone’s estimation could the 0.1 per cent growth in the UK economy for the final quarter of 2009 be seen as the end of the 18-month UK recession?

The UK’s economic debt and deficit is even worse than that of the USA and their banking sector, much of which is still on life support from the UK treasury was recently downgrading by the rating agency S&P.

It is evidence like this that is fuelling the deep pessimism of so many independent commentators whose only job is to help their customers make money through their advice.

One of their biggest ongoing worries is that so many central banks and governments are failing to recognise that adding to their budget deficits and borrowing more and more money (primarily from the Chinese) is only pushing indebted countries like us further into debt.

In other words, trying to cure a debt crisis caused by central banks and governments by creating more debt is sheer folly.

Do you believe that governments are doing the right thing in taking on more and more debt to support insolvent banks and other industries?

If you’re answering yes to that, then you must also believe that the massive, nearly unprecedented stock market rally of the past nine months or so is the genuine article and there is nothing to worry about.

And if you think this rally has mainly been stimulated by government ‘stimulus’, then you should be reviewing your portfolio and deciding whether you are happy to stay in such a volatile market.

Keep in mind that most western stock markets have produced no gains since 2000 and when adjusted for inflation, produced losses. Ditto for typical, Irish managed pension funds.

The message the experts have been repeating ever since I started writing about personal finance still holds true: buy shares cheap, sell them high.

The variation on that theme is that investors will prosper if they buy the shares of companies that are well-run, don’t carry much debt and post steady dividends. These are the company shares that the likes of value investor Warren Buffett only purchases.

There are companies that fit the above description that are not the huge names that Buffett holds but you need to search carefully to find them.

There are some high value investment funds and even low-cost ETFs that you can also buy that fit that description.

Many top advisors say you shouldn’t ever worry about what directions markets are going if these are the shares and funds you currently hold.

Unfortunately few people have pursued such a sensible, low-cost, low risk strategy. Most people have their money deposited and/or invested their money in shares (like Irish banks) they clearly know nothing about and in funds they can’t even name.

It is those people who could lose out very badly again if this bear market rally is as artificially contrived as so many independent commentators are now suggesting.

Forewarned is forearmed. At the very least, you should have a proper exit strategy in place if the markets do experience a sharp fall again; fortunes were lost in 2008-2009 because investors and speculators simply couldn’t believe that what went up so high could fall so low.


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