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« Airman Munoz? | Main | Can Money Make You Happy? »
Saturday
Sep032011

High Anxiety!

 

You may have noticed that the stock market has been pitching a “hissy fit” lately.  A prolonged debate by our esteemed lawmakers about raising the national debt ceiling, an S&P downgrade of our nation’s debt, as well as a slowing economy have given the market too much information.  So, it decided to pitch a fit and go south.  As it did, it has raised the anxiety level of many of us who have watched our nest eggs go with it.  During times when the market is volatile some feel that they need to do something, anything, just to feel proactive.  Often doing nothing is the right response, but we have plenty of pundits telling us that we should do something. During times of high anxiety, like these, those who advocate taking extreme measures in order to protect our savings seem to bubble up more often. At least, they get more media exposure. For example, we are hearing from those who suggest we should buy more gold (with gold currently trading near an all-time high.) There are those who advise buying Swiss francs or other currencies that they see as being more stable than the dollar. There are advocates for selling everything and going into cash or CDs. Others suggest that we should stockpile food/commodities in order to be prepared for the financial Armageddon they see approaching. And then there are the survivalists who see the need for guns, ammo, survival gear, and a mountain hideaway. I certainly believe in being prepared as best we can, and there may be an element of good advice in all of those suggestions, but how far should we go with these ideas?

One of the problems with going to extreme measures is the aftermath of being wrong, and those who have advocated such have often been wrong (remember Y2K?) Being wrong with these ideas can prove costly indeed. Sometimes we forget that all, and I mean ALL, asset categories have historically moved both up and down in value. Thus, if one were to panic and put a large percentage of their savings into any one asset, (i.e., gold), and it goes down (as it inevitably will at some point,) they will lose significantly more of their savings than if they were better diversified. If we spend too much of our time preparing for a financial Armageddon, we not only look foolish when it does not appear, we can lose a lot of our money by being poorly diversified.  Worrying about events over which we have no control and may, or may not occur, can also rob us of much joy.

I have recently been encouraged because our lawmakers seem to have awakened to the fact that our country has a debt problem; they seem ready to seriously address it, and this problem is not yet overwhelming.  Winston Churchill once famously said this about us, “You can always count on the Americans to do the right thing, after they have tried everything else.”  I suspect that will be the case this time as well.  During the dark days of 1939 the British Ministry of Information designed a poster to bolster the spirits of the beleaguered British.  It said “Be calm, and carry on!”  That remains good advice for us now.

Ultimately, there is only so much preparation for our financial futures that we can do because no one knows what the future holds. Anyone who tells you otherwise is either a charlatan or a well-paid financial analyst.  You can believe either with the same degree of confidence.  I choose to prepare as best I can, with history in mind, and trust God for the rest. The best tact to take during times of market volatility may well be to do what has worked in the past.  For me that means having a plan and sticking to it.  To me that means being diversified across several asset classes in all types of market conditions. So far, those who have resorted to extreme measures, such as either putting all of their faith and money into one asset class, or cashing out all of their investments and hiding it in a mattress, have not been proven correct very often.  Remember, thus far every market downturn has eventually been followed by a rally. Stay calm, and carry on!

 

Drive/Fly Safely

29 August, 2011

 

 

 

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