Permanent Value

Week in Review 10/21/13

Bruce Doole
October 21st, 2013

5 Tips For Surviving Market And Government Instability

Government shutdowns and threats of default do nothing to help investors sleep well these days. Keeping your blood pressure in check becomes a full-time job for those glued to media reports speculating deals that seemingly would end the current round of problems. The fact is, the shenanigans in Washington will continue as long as the political gains and losses are measured above the best interests of our nation, economy and the world’s confidence in our stability.

As consumers and investors there are a few things you can do to mitigate market volatility:

1. Don’t try and time the market ups and downs: If you have a long time horizon, make sure your portfolio mirrors a rational allocation to last that horizon. For example, if you are in your 50?s and expect to retire in your mid 60?s, you don’t necessarily need to be in cash now. After all, when you stop working, you don’t retire on the lump sum in your retirement plan–you retire on the cash flow you draw over your lifetime. Being too conservative can hurt you in the long run. On the other hand, being too aggressive can sink your portfolio like a stone without sufficient time to make up for big losses.

2. Review the choices in your 401(k) plan: Don’t assume that the investment choices you made years ago are still the best ones. Review the diversification, quality, costs and performance of all the choices that are provided in the plan. Check your plan to see if it permits you to roll out funds from the plan to your own IRA while you are still working. This can be especially helpful if your choices are severely limited within the plan. Make sure you seek the advice of a Fee-Only Advisor and your CPA when making these decisions.

3. Ignore the News: Reports and speculations can sway even the most disciplined person. Sometimes, a well written story is enough to convince you to make moves that might wind up hurting you in the long run. Don’t rely on the media to make financial decisions; work with a qualified planner who can help you look at options and opportunities from an objective point of view.

4. Remeasure your goals: Short term goals and needs mean the next three years; Mid-range four to seven and long-term is eight or more years. Adjust your investments to be in alignment with your goals. For example, each year, your child gets closer to college; therefore, Age-Weighted portfolios might make sense to adjust the portfolios to the appropriate time frame. The same should be applied to your other goals, such as a major purchase or any other time oriented goals. Remember, that retirement needs to be looked at from the perspective of your life expectancy, not retirement age.

5. Cash-Cash-Cash: That emergency fund is more important now than ever. If our “leaders” take us to a point of extreme consequences, having cash on hand is a prudent move to make. Six months or more of fixed expenses plus whatever other expected extraordinary costs you anticipate (i.e. you know the roof needs to be replaced or the car is facing a major repair).

The truth is, we cannot see into the future and we cannot know the impact and effects of all this political craziness. All we can do is try and take the emotion out of the equation and make sensible decisions for our long-term success.


Michael Kay, Forbes