Vance L. Falbaum 0000-00-00 00:00:00
Lessons to Learn from an Economic Meltdown None of us will forget the economic collapse of 2008. But while the value of investors’ portfolios dropped significantly, the experience itself is valuable — because we can all learn something from it. Here are a few “lessons” to consider from the recent economic meltdown: Review Your Risk Tolerance Regularly. Many people thought they could handle a given level of investment risk, only to find themselves greatly worried over mounting losses. It may be time to put the concept of “risk” into perspective. Obviously, the closer you are to retirement, the less you can afford to lose. Understand the Risk/Reward Characteristics of Your Investments. Even if you were investing within your risk tolerance, you might have been surprised by the volatility of some of your investments. And that’s why it’s essential that you know — and are comfortable with — the best and worst-case scenarios for what you’re investing in and what the risk/reward characteristics are for every investment you own. Maintain Realistic Expectations. During the 1980s and 1990s, with occasional interruptions, we enjoyed a robust stock market — perhaps unrealistically robust. By anticipating more modest returns – five-to-seven percent -- you’ll be able to set more realistic, achievable goals. Build an Emergency Fund. If you have an unexpected expense, such as a new furnace or a medical bill, you never want to pay for it by liquidating long-term investments. You especially don’t want to make that move when the market is down, because you’d be “selling low.” That’s why it’s essential that you build an emergency fund of cash containing six to 12 months’ worth of living expenses. Borrow Wisely. As we emerge from the downturns in the financial and housing markets, it will be important to borrow wisely. The right loans can actually help you boost your liquidity and reduce your risk exposure. For example, you may want to consider refinancing your mortgage, now that rates are down. Also, you may want to consider a line of credit, which is a cost-effective way to meet many of your short-term financial needs. Think Long Term — But Prepare for the Short Term. It’s always a good idea to base your investment strategies on long-term goals, such as a comfortable retirement. To achieve Wealth Management these goals, you’ll want to build a portfolio, make adjustments as needed — and then let your investments do the work over a period of time. At the same time, if you know you’re going to need a sizable amount of money within the next few years — perhaps for college tuition, a wedding or a down payment on a vacation home — you’ll want to place some money in vehicles that can preserve principal, such as cash, CDs or money markets. Look for Opportunities. Some of the best investment opportunities are found precisely when the market is down — which means you can find some good buys. Quality stocks are the first to recover when the market rallies, so if you own them when their price is down, you could see the potential for sizable gains. So during the next bear market, look for investments with strong fundamentals. Be Prepared to Rebalance Your Portfolio. During a long market downturn, your portfolio can become unbalanced — even if you don’t make any changes. For example, your long-term growth oriented investments may have dropped to the extent that they no longer take up the same percent of your portfolio. In other words, your goals haven’t changed, but your investment portfolio is no longer consistent with your target allocation for your goals, indicating a time to rebalance. Making any of these moves will take time, discipline, patience and focus — but your efforts may well be rewarded in years to come. If you have questions about any of these lessons, please contact Vance Falbaum at 800.926.9176 or 520.615.4339 or visit his website at www.falbauminvestmentgroup.com.
Published by Target Market Media . View All Articles.
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