How to Make Sense of Your 2008 Year-End Statements

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Looking at your year-end investment statements has almost certainly been a miserable experience. The S&P, one of the most popular benchmarks, lost 38.5% for the year. Then, we turn on the news, read the papers or go online, and we feel worse.

It is not surprising that there are investors who are scared their accounts might go down to zero! Many working people fear they will never be able to accumulate enough money to retire. Worse, retirees fear they may have to significantly reduce their lifestyles or go back to work. A recent survey revealed that the majority of Americans believe that the United Sates is going into a depression.

The question for you then becomes, what do I do now? Should you stay the course? Should you get out and convert to cash? Should you make adjustments in your portfolio? Should you make adjustments in your thinking?

The way I look at it is there are things you can control and things you can't control. You can control long and short-term tax planning. Of course, we will keep you informed on what we think are the best tax strategies with an emphasis on Roth IRA and Roth IRA conversion strategies. These, we believe, offer fabulous opportunities for many taxpayers. You can't control the market, but you can control whether you are going to stay in the market or get out or how you diversify and invest in the market. You can also control what you read and who provides you with financial advice.

Please keep a few things in mind. Bad news sells and bad news dominates the media. Did you know that the S&P 500 had a 20.48% increase from November 20 to December 31, 2008? We have been through bad times before. We had big dips in 1987 and 2001, too. Jeremy Siegel, author of Stocks for the Long Run, says you should limit how often you even look at your statements. He thinks people would be better off if they reviewed their statements only once a year - and would be even better off if they only looked at them every ten years!

While that might actually be good advice in an ideal world, I would offer a more realistic approach. I think a good way to react to bad news is to look for additional information. I don't mean reading hype in the newspaper or watching television - I'm talking about absorbing really good information.

James Lange is a tax attorney and CPA with a thriving retirement and estate planning practice in Pittsburgh, Pennsylvania.  He focuses on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, will and trust preparation, and intricate beneficiary designations for IRAs and other retirement plans.  Jim's advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, and his articles are frequently published in Financia PlanningKiplinger's Retirement Report and The Tax Adviser.  For more informaiton please visit www.rothira-advisor.com

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