That's a nice way to describe the economic two-by-four that clobbered millions of people this past year. Many of us watched with discouragement as our assets shrank to a fraction of what they had been. People who used to announce with pride, "I expect double-digit returns," or "I'm on track to retire in 8.5 years," are now grateful if they can just arrest the loss of principal, or shrug vaguely and say, "Retire? Someday...hopefully."
But enough whining. What should we do?
A lot! Today, we are looking at the two goals of (1) protecting the assets we have and (b) getting back to the business of building additional assets for the future.
First, you have every reason to feel a bit shell-shocked by the events of the recent past. "After one of the longest bull markets in history, many of us are stunned," admits Walter J. Ridlon III, CLU. Ridlon is CEO of the Nautilus Group, a division of New York Life Insurance Company that focuses on in retirement, estate and business planning. "Many people found that their risk tolerance wasn't as high as they thought," he said in an interview.
How can you protect and build wealth in these rocky times? Here are some suggestions:
- Keep everything in perspective. "If you had a carefully planned, well-balanced portfolio" prior to all the recent turbulence, says Ridlon, "it should still be stable today." Also, keep in mind that the overall growth of our financial marketplace over the last century has not been a one-shot fluke. The Dow Jones Industrial Average -- a consistently reliable indicator -- has enjoyed steady expansion, with periodic corrections, over the years. This long-term growth trend offers continued opportunities for men and women to achieve their financial objectives.
- Don't make any hasty changes. There is always a temptation to bail out when markets are in decline. However, "those that have a plan," reminds Ridlon, "and who stick to it, will be rewarded."
- Use Dollar Cost Averaging techniques to continue building (or rebuilding) assets, advises Ridlon. "This is the best way to handle market volatility." With dollar cost averaging, consistently continue to put a pre-determined amount of money into your accumulation vehicles, regardless of market ups and downs. During down times, this enables you to purchase greater amounts of assets. "I've personally found some excellent buying opportunities in recent weeks," says Ridlon.(Dollar-cost averaging does not assure a profit nor does it protect against loss in declining markets. To be effective, there must be a continuous investment regardless of price fluctuations. Investors should consider their financial ability to continue to make purchases through periods of low price levels.)
The Financial Markets in Perspective
At the end of 1899, the Dow Jones Industrial Average closed at 66.08. In 1929, right before the Big Crash, the Dow peaked at a robust 386. By the end of The Great Depression, it had struggled back to 200, then shot up to a dizzying 700 during World War II.
In 1966, it broke 1,000, fell to 570 in 1974, then climbed to a record high of 2,922 in 1987, only to fall back to 1,738 that same year. It passed 3,000 in 1991; pushed right on by 4,000 and then 5,000 in 1995; hit 6,000 in 1996... and kept right on going. In 1998, the Dow broke 9,000, and was well past the 10,000 mark in the early days of the new century, continuing to move well past 11,700 in 2000. (Dow Jones & Co., recorded in The World Almanac, 2001)
- Think long term, especially if you're young and have time, and keep your eye on the big picture. Three days of rain does not add up to The Great Flood. Remember why you bought a certain investment mix, and be prepared to stand firm on routine market corrections, even recessions. Most of all, "Don't try to time the market," says Ridlon. "It can't be done with any consistency."
- Take a closer look at guaranteed, fixed-return products for at least a portion of your assets, suggests Ridlon. A fixed annuity , for example, offers not only tax deferral on all earnings, but earnings are guaranteed, as is your principal, regardless of changes in the economy. At the very least, people should consider putting a portion of their holdings into such conservative, fixed-return assets.
Along that same line of thought, in the insurance area, consider whole life, which features a fixed, level premium, fixed level death benefit, and fixed, guaranteed cash value growth. Also, if you own equity-based life and annuity products and are concerned about the markets, you may want to move some of your money into fixed accounts.
- Get good advice. This is not the time to be throwing money around "willy-nilly", or to be going it alone. Meet with your own professional advisors as well as with your New York Life Agent; together, You can work out a strategy.
To help put our current economic times in perspective: Today's senior generation, those 75 years of age and older, were born into the boom era of the 1920s, struggled through the 1930s decade of The Great Depression, followed by five years of sacrifice during World War II. Then, they came home and built the strongest economy the world had ever seen. In short, make your plans, map out your wealth accumulation strategy, and then take the ups and downs in stride.
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|Protecting and Building Wealth In These Rocky Times|