An old proverb (some call it a curse) simply states, “May you live in interesting times.” Lately, I’d settle for anything other than interesting. I hear from clients all the time and many are anxious about what they should be doing. Here are some tips I’ve been sharing with them.
Have a Plan
Having a tangible plan is the single best thing you can do to help ensure you’ll meet your financial goals. Your time horizon, objectives and tolerance for risk are key factors in making sure your investments can weather any market storm. Take into account the broader picture, including strategies for managing savings, debt and insurance coverage as well as your life goals, such as retirement and education funding.
Diversification Is Not Dead
During 25 years of experience in the industry, I’ve witnessed the October 1987 crash, the 2000 tech bubble and now the great recession. Each time, a pundit has touted “this time it’s different.”
Diversification never goes out of style. Making sure your investment portfolio is allocated among a variety of asset classes and strategies is paramount to your financial success.
A balanced diet is not a doughnut in each hand; it means meat and potatoes, fruits – and yes – vegetables. In the case of your investments, it means stocks and bonds, large companies and small companies, domestic and foreign companies and even a dash of spicier asset classes such as real estate and commodities.
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Remember, with diversification, you’re not trying to beat the market – you’re trying to make sure the market doesn’t beat you.
Don’t Try To Time the Market
Moving in and out of the market can be costly. The past few years continue to show us that many market gains come during a small number of trading days. Furthermore, some of the best days in the market occur when they’re least expected.
Keep Some Powder Dry
During times of uncertainty, it’s important for you to have some funds in reserve. That advice applies whether you’re young or old, working or not. You just never know what’s going to happen. Having some cash in reserve – some “dry powder” – can help you survive any number of tough situations. If you’re working, it means a reserve of at least six months of expenses; if you’re retired, it may mean a couple of years’ worth of expense money on hand.
Be Prepared
The old Boy Scout motto, “Be prepared,” has never rung truer. Plan for the best, but be prepared for the worst. Clients today are seeking havens for turbulent times, such as high quality short-term bonds, certificates of deposit and even insurance products, including cash value life insurance and annuities. Having some money that’s not correlated to the equity markets can provide a cushion for the riskier parts of your portfolio.
To ease the pressure of managing your financial security during volatile times, you may want to consider partnering with a trusted professional. Rather than focusing on the turbulence of the day-to-day moves in the economy, you can focus on developing and maintaining a solid financial plan.
