Today, the equity markets are much more reasonably valued, as measured by price earnings multiples (P/E), than they were even a year ago. According to Barron’s Market Week, the trailing P/E on the Standard & Poor’s 500 Index as of this past September 13 is 20.01 vs. 33.60 a year ago. Yet the S&P 500 Index is up over 10% during the same period due to rising corporate earnings.

The question facing the market today is whether earnings will continue to grow at the same pace as the past five quarters? According to UBS’s equity analysts, the answer is no. They expect the S&P’s earnings to increase slightly over 6% in the coming year ("As We See It," Sept. 9, 2004, issue).

So what’s an investor to do? First, decide on an asset allocation between stocks, bonds, and cash that reflects your long-term goals and then adjust it for today’s economic realities. For example, the new lower tax laws that make eligible stock dividends taxable at the same 15% rate as those for long-term capital gains may be a consideration for including high-quality, dividend-paying stocks in a portfolio. Consider working with an adviser to determine the right asset mix for you. Certainly, review the investment results and the asset allocation at regular intervals.

In addition to concerns about market valuation, and today’s economic conditions, there is the uncertainty of wartime. Stick to the factors that you can measure and that can give you an insight into whether an investment may be appropriate for you. Will a company’s earnings grow? Can it pay its bondholders on time? As an investor, also ask yourself if your portfolios are allocated correctly? Is your wealth protected? In essence, is there a plan?