Credit Loan > Financial Services > Financial Services, Rocky Times, and Making Investment Decisions

Shaky Footing for Financial Planning

There is no question that recent events have changed the face of the financial services industry. Many investors are making fear based decisions with no clear understanding of where things are headed. More often than not, such rash action results in greater losses rather than the preservation of capital. Much of the turmoil in current markets is by its very nature transitory, however, as sometimes happens when there are large shifts in the market, some of the changes are more structural in nature. Therefore, this is a time to take a step back and look again at your overall investment strategy.

Begin by re-evaluating the distribution of risk in your investment plan to see if it still meets your investment goals. This is not something that you should do on a weekly, or even on a monthly basis, but it is something you should do annually in any case. If you are closer to your investment goals, you should consider shifting more of your investment dollars to categories of less risk-- while accepting lower returns. If your goals are longer term then you have time for swings in the market to balance out, and thus can accept greater risk with higher potential returns. Take a look at your investments to see if this risk/reward balance still fits with where you are now.

Diversification is key to minimizing risk while still maximizing return over the longer term. Different market categories usually do not move in the same direction at once-- stocks, bonds, and cash all behave differently. A good mix of investments will have some components that are more subject to risk than others at different times. In other words, refrain from putting all your eggs in one basket.

One example of what not to do is investing too heavily in the stock of the company that employs you. If they go under, not only will the value of the stock suffer, but you may be out of work. Other than diversifying, one thing you can do to smooth out the ride is dollar-cost-averaging. This is where you put a certain amount into your portfolio at regular intervals, so you are buying fewer shares when they are more expensive, and more of them when they are cheaper. Over time this helps to stabilize the value of your investments.

You should also have a safety net. If something happens that causes you to loose your job unexpectedly you should have at least six months of liquid assets to fall back on to give yourself some breathing room until you can get on your feet again. This will go a long way toward keeping you from making fear based decisions-- which is just the kind of thing that fraudsters prey on. Yes, it is times like this that opportunists live for. And, it is times like this that should encourage you to educate yourself about the changing environment around you so that you can make the best decisions possible regarding your financial future.