A summer to-do list to navigate these uncertain times


Just as it pays to establish an escape route from your home in case of a fire, it pays to establish a disciplined plan of action pertaining to your investments, all the while keeping in mind that panic is not a strategy. It is with this in mind that we thought it was timely to provide a 10-step program that might help you navigate these turbulent investment waters.
Step one. Assess your current financial situation. Items to include are your income, perceived job security, details of your pension plan, projected Social Security benefits, insurances (life, health, disability, property and casualty), real estate values, mortgage information and other debt.
Step two. Get an historical perspective on this period in history. Is it really different this time or a phase in our history that will pass? Keep in mind that the stock market generally moves up over a 12- to 20-year period with mini bulls and bears contained within and then moves sideways over the next period with mini bulls and bears in between. Until further notice and most likely until monetary policy becomes substantially more restrictive, we believe that we are in an upward trending market and have been so since early 2009.
Step three. Given the above, begin to determine your appropriate asset allocation. Some rules of thumb include the older you are, the more fixed income (bonds) you should include in your portfolio. The more guaranteed your pension plan, the closer you are to realizing the benefits of that plan, and to what extent that pension plan along with Social Security will meet your income needs during retirement, the more equities (stocks) one should include in their portfolio. The more prone you are to making emotional investment decisions, the more you should include fixed income investments. Remember that the opposites of the above also hold true and we are speaking in generalizations only.
Step four. Sell the peripheral holdings. Get out of investments you don’t understand or investments that contain volatility that exceeds your temperament. These may include but are not limited to emerging market funds, aggressive growth funds, non-investment grade (junk) bonds, and small cap stocks. If a lack of risk tolerance is an issue, sell so that you can sleep at night.
Step five. Hold some cash. Depending upon your situation, we believe that anywhere from zero to ten percent of your account is appropriate. Too little and you may sell in panic. Too much and you are not moving toward your long-term goals.
Step six. Buy some short-term U.S. Treasury Notes. Do you realize that the principal on these instruments are backed by the federal government and that the yield on the one that matures in two years has more than quadrupled to over 2.50% from less than 0.75%?
Step seven. Recognize that too many investors have their fingers on the sell trigger and too many investors have guns – in the form of their computer. Try to determine if perhaps you are one of those individuals who does not have the temperament or time to invest on your own. There is an old adage that says, “Just because you can afford the ticket doesn’t mean you can fly the plane.” Simply put, yes, it is your money, but perhaps your time, talent and temperament are better spent elsewhere.
Step eight. Be disciplined. Don’t chase the stock market on up days thinking that you have missed the boat. There will be many more boats to come around. The volatility will continue. Be patient and let the stock market come to you. What a novel idea—buying on the down days.
Step nine. Gain some perspective. If statistics hold true for those readers over 50 (for those under 50, do the math!), you have only about 30 more summers to enjoy. All that you can do is do your best and work toward reaching your goals. It is kind of like dieting and exercising; it is your best shot, but doesn’t promise anything.
Step ten. Become an investor, not a day trader. The media wants you to act, act, act, by always yelling fire in a crowded room. Think of the preceding nine steps to gain perspective. Buy low, sell high. Sounds easy but is rarely accomplished by the retail crowd because they are often scared out of their investments at the wrong time. If history is any guide whatsoever, this is truly what will prevent you from reaching your goals.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Note that Fagan Associates, Inc., or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, call 518.279.1044.


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