Katie, Bar the Doors

Sept. 30, 2011

Many journeys you take are not going to be in a straight line. Whether it be sailing into wind, or hiking to the mountain top, it’s generally a winding route. The keys are to set the course, and hug it as close as possible. That’s the essence of Warren’s sage advice about financial success – have a plan and stick to it.

These are certainly windy and uphill times for investors. It’s time for Katie, bar the doors! Not one of panic, rather it is time to check your fears and desires to run for cover, and to stick to your plan (and if you don’t have a plan, why don’t you?).

I expect plenty of crisis du jour – end of the world/sky is falling – commentary about the dismal quarterly performance for most risk-oriented investments. My key point to you is that quarterly declines are uncomfortable and even painful; however, declines are not uncommon. For example, one investment you likely hold in your portfolio is US stocks. Take a look at the historical performance (and volatility – the up and down) of the Dow Jones Industrial Average. There are 420 quarterly periods since June 1896 when the index stood at 36.15. As illustrated on the chart, quarterly performance varies… plenty of zigs and zags. For about 10% of the time, the Dow showed declines of 10% or more in a quarter… and over twice as frequent, it showed gains of 10% or more.

Over longer periods of time, investors should expect to earn the investment’s return. It’s the shorter periods that tend to give us grief. So three things:

• Check your emotions and behaviors (fear, greed, over-confidence, etc.), or you risk earning investor returns (i.e. buy high, sell low) and falling short of your financial goals.
• Revisit your plan whether you’re a DIY’er or with your advisors.
• And by all means, if you absolutely cannot sleep and need to run to cash, set objective criteria by which you’ll reinvest (e.g. the market maintains a 5% return for a month… not when you “feel better.”).

And, two more planning tips…

Review and update beneficiary designations – Life changes. Any of the Big Four (birth, death, marriage, and divorce) should signal a review and update of beneficiary designations for your 401k, pension, IRA, insurance and annuity plans. Otherwise, you might find yourself in unwanted media spotlight such Mrs. McClusky cursing the utility company for an untimely power outage – she hid her husband’s body in a freezer so she could continue to collect his pension benefits and keep Gilbert’s ex-wife from getting his money (it’s an entertaining and poignant clip, and no, I’m not a Desperate Housewives fan), or a drummer’s testimony and “foggy” recollection of Jerry’s “intentions” on or off the stage in the bitter Garcia estate lawsuits.

National Estate Planning Awareness Week, Oct. 17 – 23 – Review your estate plan with your attorney. I saw announcements of several informational webinars (free to the public) focused on some special needs (COPD, multiple sclerosis, and Parkinson’s) posted at www.NAEPC.org scheduled Oct. 17-19.

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