2)   Position your portfolio for your goals, not to beat an index.  Many people place too much importance on trying to beat the stock market. How much of our society compares all of our investing to the Standard & Poor's 500 index? When you beat the market you're happy and you're sad when you underperform. Why is this? Are your goals really tied to the stock market?

This perspective is flawed from the beginning. For example, would you have been happy at the end of 2008 if your investment accounts were down 35%?  The market, as indicated by the S&P 500, was down 38.5%. You beat the market by 3 1/2%!  Somehow, I don't think you or your spouse would think this was great news. That is why "beating the market" should not be your goal.

The true purpose of investing is to help you accomplish your goals. The rate of return you need to achieve should be independent of stock market returns. The market returns only enable you to see if your goals are realistic. For example when you need to send children off to college, or purchase a home, or obtain financial freedom, the S&P 500 has no importance. When you focus solely on the returns of the market you miss the true purpose of investing: reaching your personal goals.

3)      Take defensive measures.  In football, it's often said that the best offense is a good defense.  It is the same way with the stock market. Don't be afraid to hold cash in your portfolio mix.  Liquidity (ability to access money) is becoming more and more important.  Have at least three to six months, preferably more, set aside for emergencies.

Seek broader diversification with your investments.  Having a good mix of stocks, bonds, cash and alternative investments is more important than ever.  Investments outside of the traditional stock and bond market, such as running your own business or participating in someone else's, precious metals like gold, real estate, or commodities provide opportunities to achieve attractive returns independent of the stock and bond markets. This market is far too unforgiving and volatile to not be properly diversified.

October 13, 2009

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Jay Peroni, CFP® has quickly become America's voice and expert on the topic of "Faith Based Investing" through his weekly messages broadcast from www.JayPeroni.com. He's a renowned financial advisor and author of The Faith-Based Millionaire (foreword by Dan Miller, author of 48 Days To the Work You Love) and The Faith-Based Investor, the America's voice of "Faith-Based Investing". He is the founder of www.faithbasedinvestor.com, a faith-based investing newsletter and the founder of Values First Advisers, Inc. a firm dedicated to faith-based financial planning and money management.