Thursday, November 30th: Almost at the end of another tough and terrible week for the global stock markets. I had a private bet that the NASDAQ would bottom out at 2500 before the end of the year; it almost hit the floor today, with yet a month to go. There continues to be fear selling as tech investors take any price on stocks just to get 'something back'; consumer confidence has fallen to its lowest level in more than a year; many shoppers indicate that their Christmas budget will be smaller this year; while some money managers are so hard hit, they are mentioning the dreaded words `certificates of deposit' which are starting to look appealing. Those individuals who have invested little in stock markets are looking on, vowing never to be involved.

Some things can be concluded from much of this; there is always another side to the coin, even if you are a pessimist.

And those who vow never to be in the stock market, I have news for you, you already are. Almost all of you work in a business in Bermuda that must, by law, offer a pension plan. Most pension plan assets are fully invested in the markets, with the exception of the employee who chooses entirely guaranteed funds. Therefore, it behoves you all to learn as much as you can, because your hard-earned pension money is out there, too.

For those optimists the signs are escalating that the market is almost ready for a sharp run-up. When it happens, investors large and small will step back into the fray and purchase undervalued bargains. According to Trimtabs.com, a liquidity tracking service which uses tracking models of US stock market funds flow developed by its founder Charles Biderman, stock fund money managers are sitting on more than seven percent of mutual fund holdings in cash (the highest level in more than three years). One assumes, intuitively waiting for some signal that this market has hit bottom. In October alone, more than 13 percent of net cash in-flows was sitting in cash, not jiving at all with mutual fund policy statements espousing the benefits of being fully invested at all times (i.e. hardly any idle cash hanging around). When that time comes, this massive infusion of cash purchases into the market will drive the indexes upward with a roar. And since investment managers will not want to show high cash holdings at year-end, this rally may be soon. It may come as a surprise to note that money from investors is still pouring into funds, albeit not many tech funds, at astonishing rates. Again, lending tremendous credibility to most financial planners actual knowledge that many of our clients have not saved enough money for any life goal, and have no choice but to trust in the long-term validity of stock markets.

Another contrarian sign is believe it or not, the level of fear and gloom sentiment indicators and at the Chicago Options Exchange the Equity put/call ration has remained relatively high. This is actually considered optimistic; the higher the level of fear, the closer the market is to turning the corner and rallying, they figure. While these indicators aren't particularly screaming buy just yet, some market pros think the market is getting close.

What does this put ration mean? The equity put/call ratio was at 0.76 yesterday, showing that 76 puts traded for every 100 call options. A put option gives the purchaser the right, but not the obligation, to sell a security for a certain price by a specific time. Generally, investors buy put options either to speculate on further downside for the underlying security or as protection against a long position in the stock. A call option gives the buyer the right, but not the obligation, to buy a security for a certain price by a specific time. Investors buy call options betting that the stock will rise.

Taking a look at our Mock Portfolio originally set up in February, we see a long line of parentheses (losses). As you will all recall, this portfolio was not set up to demonstrate my stock picking prowess or lack thereof, but as a working model to demonstrate the market's strengths, weaknesses and down right fickleness. Some stocks were deliberately picked because I felt they would never survive. And again, these were never touted as recommendations.

For the year, as of Thursday, the MockPortfolio is down almost 28 percent, pretty bad, but not as bad as many who have lost more than 50 percent of their holdings. Note that the energy industry, Exxon, the drug sector Warner-Lamber Pfizer and Berkshire Hathaway are the only stars in this lot. Berkshire Hathaway is a diversified conglomerate in and of itself, and it was Warren Buffet, its CEO, who has proclaimed many times that he would not invest in Internet and tech stocks because he did not understand them. Maybe, just maybe, he was right.

Last week, we put a portfolio of favorite stock picks in the column. That group of 16 stocks after yesterday's debacle, still shows a modest 3.3 percent gain for the year. While nothing to crow about, this is a stark contrast between these two portfolios. Why is this? The Mock Portfolio has 50 percent or more of its holdings in the hi-tech and communication fields, while The Favourites were 30 percent weighted in the tech field. In a future article we will pick apart these two portfolios and discuss the benefits of diversification.

This is the second in a series on Pensions and retirement issues.

COUNTDOWN TO RETIREMENT As your retirement date approaches, there are a number of items to consider.

Forethought will reduce stress, save money and increase your retirement security. Some items will require family discussion. Facing these decisions one at a time will help -as will the services of a financial advisor when appropriate.

FIVE YEARS OR MORE TO GO You may be sitting on a portfolio that is top-heavy with growth stocks. With retirement dead ahead, it is time to change course slightly, but not to abandon the equity ship. The mistake that some people make is to tie everything up in fixed-income investment. We are living longer; leaving the job at age 60 or 65, we know today's group, may spend the next 20 or 30 years in retirement, so there is still a need to invest for the long haul.

That means sticking with stocks and equity mutual funds. To get a rough estimate of what percentage of a portfolio should be devoted to those investments, subtract your age from 100. If someone is 55, about 45 percent -- 65 percent of his /her assets should be in equities. Consider paring that down to 40 percent -- 50 percent by the time age 60 is reached.

Some people in their mid fifties who are heavily invested in equities, should begin shifting out of aggressive-growth stocks and funds, particularly in a volatile market environment of today, with the aim of putting together a retirement portfolio. It might be divided equally among the following four asset categories: growth stocks or funds (with a tilt toward blue chips rather than small companies); growth and income (or balanced) funds; bonds, possibly tax-exempt if there are US taxation issues or floating rate notes; and certificates of deposit with staggered maturities.

If you can, it is best to ease out of riskier holdings gradually by using dollar-cost averaging. Using this approach will depend upon the amount of control (or lack thereof) over your pension assets. Suppose that a 55-year-old has a total of $200,000 in retirement assets that he/she controls and which of that, $50,000 to $100,000 is in aggressive-growth mutual funds. Over the next five years, $10,000 a year, or about $850 a month, can be shifted into assets that are less volatile. However, some retirement plans do not permit monthly shifts, so contact the plan administrator for the guidelines and then act on it.

Use the same strategy if your current holdings fit the ratio but are heavily weighted toward the person's own company's stock or that of any other single company. By diversifying into broad-based equity mutual funds, it can reduce the volatility of a nest egg.

With today's interest rate voloatility, portfolio balance and diversification are even more critical. Going conservative used to be getting nine percent or ten percent in fixed annuities or government bonds. But now, one may have to look to preferred stock or utilities to get a higher income stream.

Suppose a current portfolio is performing well and a person is not inclined to adjust it. If sizable pay out is expected at retirement, sit tight and use the lump sum distribution to give equal representation in the four asset categories.

Whatever the composition of your entire group of assets, and this includes your real estate holdings and all of your investments, take the time before you retire to figure out where you stand. Work with a qualified financial planner who can play what-ifs, using assumptions and projections, to calculate and assure your peace of mind now, not later when you are no longer holding down a full-time job.

Martha Harris Myron CPA is a Bermudian, a NASD Series 7 license holder, a United States Tax Practitioner and a Comprehensive Financial Planner. She is Programming Director for the Financial Planning Association of Bermuda.

Under no circumstances are the comments in this column to be taken as recommendations on the purchase or sale of securities or any other investment product.