FINANCIALLY
Speaking
F. E. A. R.
False Evidence Appearing Real
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Jeffrey M. Orth is a Chartered Financial Consultant, a Certified Advisor in Senior Living, and an Investment Advisor Representative, with over 15 years of experience as a business and personal planning, insurance, and wealth management specialist. Jeff is available for group lectures and private consultations. Visit ifitfinancial. com or call 408.842.2716.
The author’ s opinions, comments information, etc. are those solely of the speaker and are independent of, and do not represent, HTK, and should not be considered as specific investment or planning advice. Please consider your options based on your individual circumstances. gmhToday and other listed entities are independent of and un-affiliated with, HTK and Integrated Financial
About six months ago, a client called me saying he was so concerned about a market correction that he wanted me to convert his all of his investments to cash. After discussing the possible outcomes of such an emotional decision, he decided to stay the course. As it turns out, converting his investments to cash would have been a costly mistake, as his portfolio was designed to endure downturns and actually had some guarantees built in that he had forgotten about. Fear can make a coward of anyone. With that in mind, I would like to share some thoughts about market declines.
Stock market corrections are an inevitable and natural part of investing. Having said that, it is also the last thing most investors want to experience. Although we can never know when a decline will occur or how long it will last, the way you react to market downturns will play a critical role in your long term investment success.
Here are some ideas that could help you cope with a market decline:
Maintain a Diversified Investment Portfolio It’ s a good idea to help lower the overall risk of your portfolio by spreading the risk between different investment types. You want investments that have a low correlation with each other, so that when part of your portfolio is down, the rest is still up. A good wealth manager can help you with this part, by introducing you to investment opportunities that you might not be aware of.
Invest Regularly – in Both Bull and Bear Markets Investing on a regular schedule, or‘ dollar cost averaging,’ can help take some of the emotion out of investing. This strategy calls for investing the same amount of money at consistent intervals, most commonly once a month. With this approach, you don’ t have to guess which way the market is going. And when the market is heading down you purchase more shares at a lower price.
Although it doesn’ t guarantee profit or protect from loss, dollar cost averaging is a way to take advantage of a declining market. Of course, for this to work, you must be willing to keep investing while stock prices are dropping, and the market news is negative.
‘ Stress test’ Your Investments Take a look at how your individual investments did in past down periods. Just as importantly, how did they respond when the market turned back up? Although the past is no guarantee of future performance, a look at history can be revealing.
Invest for Income Income producing investments can be an investor’ s best friend during market declines. After all, an investment is yours whether the stock price is falling or rising. Investments that tend to do well in market declines include stocks that pay high dividends, as well as fixed income investments( also known as bonds). The bonds will produce a steady flow of income during a down market. Reinvesting the dividends of a stock that is currently down will allow you to buy more shares at the lower price and may improve your portfolio’ s performance when you emerge from a correction.
Annuities with Living Benefit Riders May Offer Some Useful Guarantees A deferred variable annuity with a living benefit rider can offer guarantees that can help you protect and grow your future retirement income, despite market downturns. Also, the death benefit of a variable annuity will not be less than the net amount of money placed in the account, and with some riders, it will increase. This can help protect your loved ones from loss if you were to pass away.
Consider the tax consequences of selling your investments. If you have a taxable account, it would be wise to evaluate the tax consequences before selling in a market decline as there could be significant build-up of capital gains. You need to be of aware your tax liability for this action. It would be prudent to talk with your tax advisor before you actually sell.
Talk with a Financial Advisor The thought of a market decline may prompt you to re-examine your strategy with your financial advisor. Take another look at your investment goals, time horizon, risk tolerance and financial circumstances. Have any of these things changed since the last time you spoke? Keep a long term perspective. If nothing has changed, then perhaps it may be a good idea to stick with your original plan.
Courage is not the absence of fear, but rather the ability to overcome it. Fortunately, you don’ t need to face market volatility by yourself. By partnering with an experienced Financial Advisor, who understands your goals for the future, together you can plot the best course in troubling or uncertain times.
Benefits Network( IFit). Registered Representative of, and Securities and Investment Advisory services offered through Homor, Townsend & Kent, Inc.( HTK).
Registered Investment Advisor Member FINRA / SIPC, 16845 Von Karman Ave, Ste. 225 lrvine, CA 92606( 949) 754-1700. I Fit is independent of HTK. CA Lic # 0C49291 © 2016 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172
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GILROY • MORGAN HILL • SAN MARTIN SEPTEMBER / OCTOBER 2017 gmhtoday. com