Across my Desk: "Don't try to catch a falling knife"

There's an old Wall Street saying worth considering: "Don't try to catch a falling knife." Oh my, how very true.

No two ways about it, the investment situation today is very ugly. Then again, it's also full of opportunities. First, let's look at the ugly.

Lipper's mutual fund performance numbers for the third quarter and year-to date show that for the quarter ending Sept. 30, 2008, the total return on the average equity fund (they track13,126 of them) was down 12.57 percent. Year-to-date, off 21.24 percent.

The fund categories with the worst performance this year, (from Dec. 31, 2007 through Sept. 30, 2008) include: China region funds, down 43.70 percent; Pacific Ex-Japan funds, off 37.22 percent; emerging markets funds, down 36.64 percent; diversified leverage funds, off 32.12 percent; and international real estate funds, down 31.30 percent.

The best groups? Real estate funds, on average down 2.07 percent; equity market neutral funds, off 4.06 percent, commodities funds, down 7.99 percent; and health and biotech funds, off 8.56 percent.

If you're an S&P 500 index fund shareowner, expect your investment to be worth nearly 20 percent less (19.58 percent to be exact) as of Sept. 30 than it was on Day 1 of this year.

BTW, the only equity fund category showing a plus-side return is dedicated short bias funds. Funds in that grouping were up on average 19.51 percent.

On the positive side of all of this mess is opportunity. Today there exist some wonderful investment opportunities for mutual fund managers with money to invest and for individuals with the same. As an individual knowing where or when to put your money to work, however, is the $700 billion dollar question.

That said, what should you do? For openers, as the adage remin ds us, don't try to catch a falling knife. Let time decide whether you ought to sell your mutual fund shares or to make new purchases.

For example, those in their 20s, 30s and even early 40s have decades to go before tapping their investments. For that age group, consider the old rule-of-thumb that Ibbotson, a Chicago-based securities analytical firm, used to talk about. Basically it said that it takes 20 years for risk to be eliminated from the equity market. Translated, if you invest $5000 today and the markets bounce around in Crapola Land for the next two decades, 20 years from now you're investment will still be worth $5000. If there's a better reason for including a safe fixed-income component in your investment portfolio, I can't think of one.

Those in the 50s, 60s and beyond have time on there side, as well, but not as much of it. Consequently, this is where any advice giving gets sticky and is best done by putting a few heads together those of whom know precisely know what's truly going on in your life.

No matter what the outcome of such a gathering of minds, remember cash is and always has been king. If you're just beginning to invest for your retirement and fall into the 50+ age group with say $25,000 or $50,000 put aside, looking at all of your investments---and debts---is paramount. Understanding your tolerance for risk is too. Make sure to take a long look at the current funds held in your IRAs, ROTH I RAs, 401 (k)s etc. to see where monies are invested and what performance is and has been for the last year or two. Changing them is always an option but don't do that in haste. Continuing to reinvest also a choice.

Bottom line: Nobody knows how the markets are going to perform going forward. Nobody---never have never will. But everybody knows having cash to spend or invest always makes sense no matter what's going on in the markets. So why not let this market provide the impetus for you to turn over a new leaf and, no matter what your age group or investment situation, begin to save like a squirrel getting ready for a long cold winter. Odds are we're in for one and having a fat, easy-to-tap savings nest egg held outside any formal retirement plan(s) will keep the worries of a falling knife at bay.

contribution, Welther advises."