Short-term nightmares - long-term objectives

I am not sure when it occurred last. That is for so many individuals to have doubts about the future, when the opportunities are so pronounced.

For long-term opportunities to become realities, we need to have confidence that certain facts are still true. Some of the questions we need to answer are: Has the world changed? Is there a new world leader? Have the American people changed fundamentally? Are Americans still the king of owning stuff? Is strong desire still a component of human nature? Is there still a desire to have a higher standard of living than our parents? It is my belief the answer to these as well as other questions have not changed significantly. Will some behavior change occur as a result of this recession? Clearly the answer is yes. But, there has not been a fundamental change in our behavior in my opinion.

If my presumptions are accurate, consumers’ confidence will gradually restore itself, so the spending will resume and the economy will pick up. Or, due to the government stimulus spending, the economy may pick up thus building consumers’ confidence, so their spending resumes. No matter the order of these occurrences, in all likelihood they will occur during 2009; and, we may see the end of the recession before Christmas.

You must remember everything that is currently happening has occurred before. This is not the first recession, as there have been over 30 before. Significant employer job losses have also occurred before. (If you are one of the many who have lost their job, my prayers are with you and your family that you manage through this difficult personal time.) The stock markets have dropped before. Scandals are not new and neither are business failures. And while many may say this recession is different, please tell me what two recessions are exactly alike anyway. The catalyst and those impacted the most are always different. But, the solution is generally the same; when spending strengthens, then the economy grows and the recession ends.

The challenge is to live through the nightmare and benefit from the recovery. You must be invested though to benefit from the recovery. To live through the nightmare, you might believe being in cash is better. Obviously, while both may be true, you cannot do both at the same time. Another challenge is to reconfirm your objective. Are you a short-term or a long-term investor? Since short-term investors should not expose their investments to risk, if you are ‘short-term’ then you should be in cash or other riskless or low-risk investments.

For those who are long-term investors, it is beneficial to understand the duties of your portfolio. A portion may have the responsibility to create current income. This is the amount of cash needed to maintain a lifestyle. Another portion may be there just to provide peace of mind. It is there when and if you really need it, otherwise not much attention is given to this portion. The largest portion may have several purposes. First, it may need to supplement the income generated so the required cash flow is met. It also needs to grow so when increases in income are needed in the future, the portfolio has gained in size and thus able to meet higher income needs due to inflation or increases in personal spending. It may also be your intent not to spend this portion and thus be able to pass it to your children. To satisfy these purposes, it would be ideal to take advantage of the current low equity prices.

To take a portion of a portfolio whose value is already significantly below its high and purchase more equities may go against your better judgment. But, to wait for confirmation that equities are once again okay to purchase may cause you to miss a significant amount of the recovery. To make sudden changes in strategies during uncertain economic times is rarely a good idea. Tiptoeing back into appropriate equities over a long period of time may provide the upside exposure you need. Selecting equities that pay dividends will permit your account to receive income while you wait for the recovery; and in many cases, the dividends from stocks may actually pay a higher rate than money market rates. But with every step you take this year, know that the step may involve risk. Dividends are not guaranteed; and in difficult economic times, corporations may lower their dividends.

Most of you rarely repair your own vehicle when it is damaged or broken but think nothing of managing your future even when the importance and value are so significant. Whether the markets are roaring or raging, the assistance from a qualified professional like a CFP may prevent you from making mistakes.

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