Financial Security in Uncharted Waters

Take Heart. Seasons Change. Bears Hibernate. The Tide Will Come In.

It’s the nature of the beast. Change is inevitable. How do you achieve financial security in uncharted waters?

If you haven’t done so yet, it is vital you protect yourself and conserve cash now, so when the true buying opportunities present themselves (and they will), you’ll be ready, with cash to invest. Unlike the masses, you can profit from this beastly decline.

Take advantage of upticks in the market to sell investments. Don’t mistake them for a new bull market. Not yet. ***

The ebb and flow of the ocean tide provides powerful life lessons. I’ve just returned from spending time at Cape Canaveral, walking and biking the beach each day, quieting the soul to open myself to the life lessons I would discover.

Ocean tides are predictable; just like clockwork they naturally and alternatively rise and fall. But the choppiness of the waters, height of the waves and color of the ocean change unpredictably each day. Some days the wind creates whitecaps even within a sheltered bay. Other times the ocean itself is calm and flat waters prevail.

But the tides?

Predictable. Expected. Unavoidable.

Understand the tides of investing are similar. Don’t fight reality nor bury your head in the sand. Neither will help your situation. When times are prosperous and the market is rising, no one thinks those times will ever end.

When the market is in a downward spiral, there also doesn’t appear to be an end in sight. Neither belief is true.

Contrarian wisdom wins every time. It is time to prepare for the next wave. Think about this …

Cash is King. Always.

Achieve financial security in uncharted waters by understanding and implementing timeless strategies for building financial strength. If you have remained invested in this market, you have to seriously ask yourself, why? Check out our October 08 article the Fox and the Goat, Who do you trust?

Is fear or greed interfering with rational thinking? Or are you procrastinating because you don’t want to make a wrong decision? It’s really not your fault. You have been programmed to hold on at all costs.

Right now, today, your primary objective should be preserving your assets, not looking at potential investment returns. This is a different ballgame. Back to basics rules apply.

Money market funds paying just 1/4 %? That’s a fabulous return when you are looking at the alternative. By investing in a money market savings, U.S. Treasury Bills or similar liquid investment, you have just made 20% more than the investor who chose to stay invested … and that’s just since January of this year! Perspective is vital to your success.

The DOW is at 1996 levels and the S&P is at 1995 levels, essentially wiping out all gains for the last decade.

Buy and hold? I don’t think so.

Buy and hold is a bull market strategy and does not work in a bear market.

Whatever happened to buy low, sell high?

Regardless of the market, all financial plans should begin with a planned “exit” strategy. This is the most important discussion you will have with your advisor (or with yourself for that matter).

• When will you take profits?
• When will you conserve principal?
• What is your plan when you have reached a financial goal?
• How much of a loss are you willing to take before you take money out of the market? 10% – 20% – 30%?

It is difficult, but necessary, to ensure emotion is removed from your buying or selling decisions.

Just as a fire drill prepares you in advance for an unthinkable emergency, advanced investment planning protects you from having your financial security go up in smoke.  Make decisions when you are calm. Consider your investment time frame, risk tolerance, and need for this money.

Prudent investors realize any money you will need to access in the next 3-5 years should always be kept safe. Stock market investing is for long-term money. If you are either close to retirement or already retired, you cannot afford to ride this financial tsunami. If you will soon need money for college, the stock market is not the place to be right now.

The DOW hit its historic 14,000 marker July 18, 2007 and then slowly but persistently tumbled down the mountainous slippery slope of global debt and financial crisis. Still there was an aversion to selling that defies all reason. This includes mutual fund managers and sophisticated investors such as Warren Buffet whose Berkshire Hathaway put in its worst year yet, losing 48%.

Are you a Victim of the Ostrich Syndrome? It’s Contagious!

Selling is a timeless strategy that has taken a back seat to the Ostrich Syndrome of buy and hold, regardless of the consequences or what the market trends are clearly showing. Since most investors (and young advisors) have experienced nothing but a growth market, it is a mind shift to embrace the reality that a bear market (click for video) is dancing right in front you and you can’t see him.

This global downward spiral is real. Ignore the bear at your peril. Denial won’t help.

If you bought $10,000 of AIG stock last May when it sold for $50 a share, you would now have $98, down 99.25%.

• Bank of America is $3.65, down 91.43%
• Citigroup is $1.22 a share, down 96.31%.
• GM closed at $1.99, down 93.64%.
• GE sells for $7.01, down 81.73%

These are the companies your pension and 401k plans are invested in. Liquidity is your friend. Check out the stock chart below to grasp what has happened to these four corporations over the last year. This is reflective of the market.

Take heart. Even though no one can predict the bottom, it will come. I’m a realistic optimist. I have faith in the people of the United States even if our corporate leaders have led with greed rather than prudent judgment. However, I also believe the worst may still be ahead of us and that recovery may take years. I truly hope I am wrong, but I would rather err on the side of caution than inaction.

***So what should you do now? Talk to a trusted advisor and decide on a course of action that is appropriate for you and your circumstances. If your investments are with a 401k, talk with an advisor about any restrictions in moving your money into more stable investments within your retirement plan. Same for any variable annuities or IRAs. Don’t panic and make choices you don’t understand. Information is not knowledge. Knowledge is not wisdom. Fully understand your options and restrictions prior to making an irretrievable decision.

Join the conversation. Please feel free to leave a comment or ask questions.

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“To every thing there is a season, and a time to every purpose under the heaven…
a time to keep, and a time to cast away.” –
Ecclesiastes 3:1,6b, King Solomon of Israel, ca 1000 BC

DISCLOSURE: This publication is strictly provided as an educational resource and research publication and is does not provide any individual customized recommendations to buy, hold, or sell securities. Consult with a personal financial advisor before making any personal investment decisions. Click to read more about Lynn Shepherd.