Managing investments through difficult times

Investing is difficult enough due to numerous types of securities and then the thousands of choices. To add political unrest, market demands, excesses, supply interruptions, new discoveries, government intervention or lack thereof, currency exchanges, inflation, interest rates, unemployment …can make the typical investor want to throw in the towel and place their money in something safe like the mattress. While you may believe this will permit you to sleep at night, all the lumps in the mattress from your money may also cause you to lose sleep, or it could be the lack of long-term growth once you are out of the market.

As you already know, there are several key factors impacting our current markets. They include the decline of the dollar, which has contributed to the increase in the price of oil. Other factors include our sluggish economy and the disarray in our financial markets as well as the decline in housing values. But, it could be worse! Had the price of gasoline increased the same percentage as oil during the last year, the average price per gallon would be $6.35.

Investors often get caught up in the current storm or euphoria surrounding the market. With both the Dow Jones Industrials® and the Standard & Poors 500® down more than 7% for the year as of the 16th and 2007 performing poorly, it is not difficult to assume the markets may never go up again. During the period 1995 through 1999 I spoke with many investors who believed the market could not make less than 20% per year. Long-term performance is made of averages, and the key is "long-term".

Many of the headlines of today may not tell the whole story. Part of our current difficulties is the potential home foreclosures. According to the Federal Reserve Bank of St. Louis, Wall Street, and Equifax, as of March 31st approximately 4.5% of all mortgages were at least 30 days delinquent. In January 1, 1934, 44% of all US homes were in default on their mortgages. Clearly 4.5% is too high and appropriate steps may be required, but the condition is not catastrophic. Also, the number of bankruptcies seem to be climbing. According to Health Affairs, 55% of all personal bankruptcies are in part due to medical expenses. Thus, the headlines implying our economy is faltering may not be exactly accurate.

The fact remains, we cannot control the direction of the markets and everyone must come to terms with the fact the markets often get as tired as we do, and thus stay flat for a while or even retreat. During these periods, it may be helpful to go through a few exercises to avoid stress or worry about your finances. If you have an area where you track your investments and this area is now full of unopened envelopes and messy, take the time to organize the desk. Go ahead and open the statements and file them as you usually do. Comparing the current balance to last month's statement may not be the best thing to do. But, comparing them to a statement for the same month in 2007 or 2006 should indicate your account is still growing. Once this area is neat, that alone may help avoid some of the worry.

If you have unopened statements, it is clear you do not want to see the impact the economic news is having on your accounts. Avoiding your investments is not the best action, but taking action based upon fear or worry can be more damaging than leaving your accounts alone. If you are one of the thousands who find it too stressful to manage your investments during difficult times, hiring a manager is a sound step to take. Most investments professionals take steps to remove emotion from their decision process. In my opinion, this is critical for long-term success. Also, if you are not adding to your investment accounts each month, perhaps you should start. Even if the monthly investment is small, this addition should have a positive impact on the long-term value of the account.

Another way to reduce financial stress is to avoid listening to the news as well as reading only the headlines. News stories on the radio or TV rarely have sufficient time to provide all of the facts. Newspapers recognize many readers do not have sufficient time to read the entire paper and thus review only the headlines. Taking time to read key articles should provide facts not disclosed in the headlines and thus may help you avoid stress.

Reminding yourself of your timeline can also reduce your stress. If you are still the manager of your assets and still worried about the markets, then perhaps you are holding a job best suited for a professional. Meet with my firm or one of the other area certified financial planners. We are here to help.


Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.

Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.

Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.

© 2008 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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