Take a look at your fees One of the issues that can get lost in the drama of a market downturn is the price that you’re paying for your investments. While it may seem as if paying an extra one or two per cent fee or trading commission is “peanuts” at a time when the stock market is dropping by 10%, 20%, 30% or more, the actual math suggests otherwise. Over the years, even a 1% difference in fees which you pay on your investments can make a dramatic difference to your long-term wealth. So, while you’re rehabilitating your portfolio, take a look at your fees and ask yourself: are you paying high fees on mutual funds, ETFs and other pooled products? Are there cheaper alternatives available? If you’re a trader, what kind of commissions are you paying? And if you’re working with a financial planner or wealth advisor, have they earned their fees − by keeping your losses to a minimum, by guiding you to better decisions, by identifying opportunities to take advantage of, and dangers to steer clear of? Only you can answer these questions…but asking them is always a good idea. Think about income One of the central challenges for snowbirds in a market downturn is figuring out how to generate investment income at a time when capital is under severe distress. The challenge becomes particularly acute when trying to heal a portfolio at the same time − it’s hard to rebuild your assets if you’re constantly making withdrawals for day-to-day expenses. As you go through the process of healing and rehabilitation, take a look at your income-generating assets. Do you have enough of them? Were they able to provide adequate income for you during the recent downturn? If not, take the time to identify potential income opportunities now, so that your income stream can become more “independent” of market volatility (as much as possible) in the future. We should note that one of the best ways to rehabilitate your income stream is to earn additional income yourself − by taking on a part-time job, taking on consulting work or starting a side or “hobby” business. No, such options may not be available to everybody. And let’s be honest: for many of us, the thought of becoming “un-retired” makes our stomachs turn. But the fact remains that earning a little bit on the side can give your portfolio some important “breathing room” and give it time to heal. Examine your asset mix Often, the first casualty of a lengthy market downturn is your asset allocation.Throughout the downturn, different assets performdifferently − equities often drop the most, bonds and other fixed-income investments (usually) drop somewhat less and cash typically holds up pretty well. After the downturn has passed, the percentage of your portfolio allocated to each of these asset classes is likely to be substantially different from your ideal allocation. What should your “ideal” allocation be? Once again, that’s a very personal question. It depends on your age, your need for income, your risk tolerance and your overall familiarity with various asset classes. If you don’t know how to determine what an appropriate level of diversification should be for you, it makes sense to engage an experienced professional financial planner or wealth advisor to help you figure it out. Remember: in the short term, diversification doesn’t matter all that much, particularly in a downturn which causes all assets to suffer (as they did in the most recent downturn). Over the long term, however, owning different types of investments that perform well in different investment environments − what your grandmother called putting your eggs in different baskets − can be one of the simplest, most effective ways to protect your wealth. Invest in your knowledge During times when all it seems we can talk about is what’s going on in our portfolios, don’t forget that one of the best investments you can make is an investment in your own investment and market knowledge. Now that we’ve experienced one of the most significant downturns in a decade, it’s a great time to learn how to be a better investor. Check out books, podcasts, online forums and other resources that offer timeless investment wisdom. Check out the investment managers whom you admire—Warren Buffett, Peter Lynch, John Bogle, PremWatsa, just to name a few − and learn about their approach to investing before, during and after bear markets. Check out the famous financial-planning writers (David Chilton, Robert Kiyosaki and others) and find out what they have to say about how to survive and thrive during difficult times. No, none of these resources will make your portfolio “bulletproof ” from volatility. But the collective wisdom of those who are better investors than ourselves can help us make more sense of what’s going on, and can help steady our nerves during difficult times.That’s an investment worth making. Long-term rehab Once you put a “bandage” on your portfolio and start the healing process in earnest, you can then turn your attention to the future, and consider actions and approaches that will help prevent your portfolio from becoming injured again. Here are some ideas. Finance 30 | www.snowbirds.org
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