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Adrian Mastracci, president of KCM Wealth Management, says “You don’t want to be underinsured on property coverages. Whether you own or rent. It may cost much more than some policy premiums." |
Vancouver, BC (September 11, 2006): The data and discussions suggest the economy is headed for a landing. Be it soft, hard or somewhere in between. Very few views point to a rosy picture.
An unknown author once said, “A bend in the road is not the end of the road... unless you fail to make the turn.”
Adrian Mastracci, “fee-only” portfolio manager with KCM Wealth Management in Vancouver says, “Don’t allow a bend in the road to char the portfolio. All investors can affect how they invest within the markets.”
Investors constantly wonder what the markets have in store. Key concerns include the prospects for energy prices, consumer spending, housing markets, jobs, interest rates, inflation and earnings.
However, it can be a full time job just to keep the overloaded information pipeline in check. The economy alone brings about 40 to 50 major data releases every month.
It’s no surprise investors feel overwhelmed. Perspective helps in making the turn ahead.
Adjust the approach
We’ve come quite a long way since the bear market lows of October 2002. Factoring in some softer times ahead is a smart exercise.
Investors may have to adjust their thinking. A few precautions won’t hurt. It will be a welcome bonus if a slowdown does not materialize.
Let’s say a slower pace than what we’ve experienced. Somewhere between a drizzle and a deluge before investment sunshine returns.
Markets can turn on a dime. Even if you think you know what’s going on. Don’t pin your investing hopes on guessing whether the economy will deliver or disappoint from now on. It’s a mugs game.
Preparing for both outcomes is smarter thinking. Get defensive. Work on a personal investment strategy that will not spoil the party if the bet about the economy is wrong.
Buttoning down
Investing has always been and continues to be a long-term journey. First, stand back for a moment and take an in-depth look at the game plan. Is it on the right path? Can it survive a bend in the road?
Investigate how a slowdown could affect its outcome. Determine if the investment foundations can withstand some market rattles. Whether the investment risks are higher than they ought to be.
Now I summarize my defensive strategies for softer times:
- Revisit what is expected of the portfolio. Both for now and the future. Figure out which is more important: growing the nestegg or its preservation. It makes a difference to its design.
- Decide on the right mix of assets and stick with it. Reduce over exposure to equities when prices are high. Rebalancing now would be a good practice.
- Diversify the portfolio into suitable asset classes. Equities are exciting, but don’t exclude those boring bonds and cash instruments. Some predictability is a good thing.
- Own a piece of the entire rock. Sprinkle the nestegg all around the world. The biggest allocation is likely the home country. Then think about our neighbour and global opportunities.
- Focus on investment quality. Investors that crave a little raciness, can set aside a small sum for such picks. They won’t be scorched if the impeccable picks crash and burn.
- Investment profiles should not change frequently. Neither in good, nor in bad markets. Some may find it more comforting to temporarily adopt a less risky position in the markets.
- Skip the chase for those sizzling hot sectors. They can cool down rather quickly. Besides, too many investors miss the exit signs when time is ripe to cash in their chips.
- Don’t get carried away with borrowing to invest. Leverage can sting fast, deep and long. Reducing borrowing exposure makes good sense.
My guess for the markets is a continued roller coaster with volatility. I would look for a soft landing. Adopting my defensive strategies provides the buttoning down for softer times.
The goal of investing is to be right more often than wrong. Broad diversification is still the best portfolio medicine. A true friend indeed.
Nobody has to slide off the road negotiating the turn ahead.
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