Another Year Older
As 2010 draws to a close, I thought I’d take a look back to see what lessons we might learn from the past, then a fearless glance forward to see if any of them might be applicable in the future.
I have heard this described as a “lost decade” for investors. The Standard and Poors 500 began the decade at 1469 and ended at it 1115, having peaked at over 1500 in 2007. The stock market, of course, is a leading economic indicator. As confidence in a recovery has risen, so has the S&P which recently closed above 1250. My take-away from the past decade’s choppy market is that diversification offers investors the only protection available since it’s impossible to predict the future.
That said, my first suggestion is to make sure your asset allocation is appropriate going forward. During bull markets, most investors describe themselves as being quite risk-tolerant. Corrections have a way of encouraging reconsideration, so I think all investors should complete a new risk tolerance assessment, then make sure their asset allocations reflect both the current score and recent market gyrations.
With thoughts of the market correction still fresh, risk management should be on everyone’s mind. I think it would be a good idea to make sure you know exactly why you own every insurance policy in the drawer. I often encounter young parents with too little life insurance and older couples with too much. Likewise, older individuals may need increased property & casualty coverage to protect their larger collection of personal property. Regardless of age, no one should be without an appropriate umbrella policy to protect against a major claim.
One simple step that can provide some peace of mind is to empty your wallet and photocopy both sides of every item it contains. Keep that copy where it’s easy to find - other than in your wallet. Should it be lost or stolen, you’ll have all necessary phone and account numbers at hand so you can begin the notification process. If you don’t have a copier handy, we’ll be glad to do this for you and will be happy to scan your pages and keep electronic copies on file.
Along that same line, all of us have handed a credit or debit card to someone in a restaurant or entered an account number on line. To be certain that no one has borrowed your credit, take advantage of the free credit reports which are available. Be sure to use the proper website (www.AnnualCreditReport.com). The site with the more obvious name exists only to sell expensive and unnecessary credit monitoring services.
I would encourage each of you to make sure your computers are safe and your data is backed-up. More and more people are saving their important photos and documents on their computers, meaning a fire or theft could deprive them of their memories and records. Companies such as Lojack for Laptops can improve the chances of getting a stolen computer back and cloud-based backup services such as Mozy or (quite probably) your own ISP can keep things safe and easy to restore. Please let us know if you’d like to see a more detailed article on this topic.
Analyze your expenditure of time as carefully as you do your money. Are you spending it wisely? It’s an old saw but very few people find themselves on their deathbeds wishing they’d spent more time at work. Just as with specific investments and insurance policies, be sure you know why you’re spending your time as you are.
One positive result of the recent market scare is that our fellow citizens are now using credit more sparingly. The US savings rate is at its highest level in years, so this might be a good time to congratulate yourself for operating on a more sensible budget. Beyond simply being sensible, I think each of us should make a conscious decision about the level of savings which we maintain. There’s an appropriate amount for every situation and, just as too little is wrong, too much may not make sense either. Don’t allow this or any of life’s decisions be made through inertia.
In case the title of this article brings to mind an old Tennessee Ernie Ford song, those Americans who are employed now have more savings and less debt than they did prior to the ’08 market correction. Unfortunately, the same cannot be said for our government. Piecemeal budget modifications have put our country ever deeper in debt to the company store - in the form of global investors. I urge you to consider the long-term effects of our deficit when you cast your ballot in 2012.
It has been our great pleasure this year to work with those of you who are clients and to offer these words of advice to others. Jalene and I wish you a wonderful holiday season and a happy new year.
We’re Off to See….
Jalene and I met a young woman a couple of months ago and soon thereafter she became a financial planning client of Jalene’s. Apparently, she was also interested in our wealth management services but was reluctant to raise the subject, having found me somewhat intimidating at that first meeting. She later told Jalene that she’d read a number of my articles and had begun thinking of me as the wizard behind the curtain. She wanted to learn more about our strategy but was a little afraid to approach me. I’ll admit that I do spend quite a bit of time back in my office studying markets and the economy, since I’m always on the lookout for an insight I might be able to use to help our clients. It never occurred to me that the practice might make me seem unapproachable but that’s just how she found me.
When we met again a little later, she told us that she meant the wizard description as a compliment, having come to think of me as the guy with all the answers. After twenty-one years in the world of investments and financial planning, I suppose I probably have learned a few useful things but, again, that’s just not the way I think of myself. As that meeting progressed, she became comfortable with our fairly complex investment approach and asked us to manage her investments too.
After that second meeting, I found myself thinking about the way she characterized me and wondering how closely the description (and the world in which we practice) might follow the Wizard of Oz’s storyline. Her intended compliment notwithstanding, I remember the wizard as being at least a bit surreal. He appeared as a shadow on a screen, cast by a light projecting up on him from a low angle. This made him seem much more imposing to those who sought him out, thus quite intimidating. The investment world too, is populated with characters who seem larger than life, including those wearing white hats like Warren Buffett and others like Bernie Madoff.
Through his theatrics, the wizard managed to fool almost everyone, as have real life scammers. In both the story and the world, such characters prove that anything which seems too good to be true almost certainly is. Toward the end of the story, the simple act of Toto’s opening the curtain revealed the wizard’s fraud, also paralleling numerous recent exposés of various investment scams.
Other characters from the story also make their appearance in real life. Heartless tin men and cowardly lions are in ready supply, although I’m not sure there’s much to be gained from mentioning scarecrows who lack brains. The story is well populated by wicked witches, appearing from all points of the compass but it also features a good witch named Glinda. You may remember that she’s the one who reveals that Dorothy’s traveling companions have always had what they thought they lacked. All they ever needed to do was to have faith in themselves to solve their problems.
Dorothy too, had always been in control of that thing she most desired - a way to return home. Perhaps it’s not stretching the story too far to point out that it’s our clients, not Jalene and me, who have power over their own lives. It’s extremely satisfying to fill the Glinda role and help those who come to us for advice learn more about their own power. There’s usually more involved than the clicking of heels together three times but we truly enjoy watching people who have become our friends take (or reclaim) control of their financial lives.
Whether it’s an individual searching for specific financial answers or the simple liberation which comes from discovering the answers within, Jalene and I are honored to be thought of as a resource and will help with drawing those curtains aside in any way we can.
