Attention: This is not a drill
The stock market’s recent dive should have caught every investor’s attention. However, for Baby Boomers and current retirees, it is way beyond a casual glance at a TV screen in a restaurant at lunch, to see how the market is doing.
As I considered what to write this week, I kept coming back to a singular concept: markets, like life, are cyclical. They ebb and flow. But we can’t control the timing of those ebbs and flows. Instead, we have to focus all of our energy on what we CAN control. Specifically, the approach we take to the pursuit of reward, the risk we take to pursue it, and the set of tools we learn and apply to turn our financial goals into reality.
Bend, don’t break
I have found that the best way to thrive in tough market environments is to include true, risk-management practices in the continuous, ongoing, everyday effort of allocating and managing assets. Otherwise, it’s like a fire drill every time the market dips, drops or crashes.
And, from what I see quickly shaping up in global market conditions, this is no time to assume it’s just a drill. Investors have been conditioned to “buy the dips” and be greedy whenever possible. I think that era is over.
The “How” (summarized)
What do I mean by this? Here are a few things I believe investors and financial advisors should be doing, or learning more about how to do, in what I believe is a changed environment. Importantly, this is when some of the most prolific opportunities to reach one’s retirement objectives arise. And, I am not simply talking about buying stocks on every dip. In fact, I am not talking about that at all. Here are a few bottom-line thoughts on that:
1. Make greater use of put and call options to supplement the stocks, ETFs and cash in portfolios.
2. Consolidate more assets toward a central strategy. This promotes your ability to be proactive, at a time when so much of the investment world moves in sync. Diversification fails more often in market downturns than at any other time in a market cycle.
I realize that much of what I would write to complete my thoughts on this topic have been written before. By me, in this column. So, to avoid re-inventing the investment wheel, here is bottom-line set of excerpts from some of my recent articles for Forbes.com on this subject.
Taken together, I think they offer some perspective on preparing for and executing through a potential major sea-change in markets and the economy. And, I think it can help you to do so with markedly less “drama” than you may find elsewhere. Wall Street is nothing if not opportunistic, after all.