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Buckle Up and Hold On: Investment Roller-Coaster Ahead

Sun, 20 January 2013 17:53
by Mr. T

When you’re on an aeroplane and it hit turbulence or rough weather, the flight crew tells you to stay seated and buckled. Unfortunately, when the markets hit bad weather, there is rarely such a warning.
You might want to call it a Black day.
On the radar, we’ve seen the storm clouds moving in for a while now.

Lower than expected GDP in the US last quarter

Lower business and consumer confidence

Sharply lower than expected new jobs created

Higher unemployment and

 foreign debt crises weighing down most of the Euro-zone trading partners.
All this has been creating doubt in the minds of investors about the ability to find and implement policies or actions by governments or private sector companies.
And doubt leads to uncertainty. And if there’s one thing we know for certain, it is that markets abhor uncertainty.

What’s can Investors Do?
Don’t panic. It may be a cliché but it’s still true. If you hadn’t already put in place a hedging strategy, then what is past is past and move forward. It will not help much to panic and start selling your stocks, bonds etc at substantial loss.  Investments are for level-headed people. If you are not level-headed stay away or engage the services of Investment Managers.

Here’s a simple plan to consider
Hold On:
You can’t lose anything if you keep on trying. Over the couple years, it has been proven that those who have a long term view tend to achieve their goals more than speculators.
Foreign currency and stock markets are known to behave rationally in the long run. That is the reason why Warren Buffet is regarded as the king of investment.
Hedge: You need to put in place a hedge. There are lots of tools available to investors (and advisers) to help. Exchange Traded Funds (ETFs), for instance, can be hedged with options or you can use ‘trailing stop-loss’ instructions to limit the market downside.
For those who don’t understand a hedge, it is a system you put in place to cover for severe conditions. For example, if you want to buy goods in China to supply to government, you can invest in foreign currency today so that by the time the government gives you the mandate to buy, you have enough currency bought at a favourable price.
To simplify this, maybe you want to marry and you think your partner might ditch you when the time comes, to hedge you can have two, so that on that day you have another option. 
Keep Your Powder Dry and in Reserve: Cash is king – an oft-repeated phrase still holds true now. Take a page from retirement planning advice and make sure you have cash to cover your fixed overheads for a good long time. With cash in place, you won’t be forced to sell out at fire sale prices now or during other rough times. This is part of what I refer to as Buy and Hold Out.

Seek Professional Help: Research reported in the Financial Planning Association’s Journal of Financial Planning shows that those with financial advisers and a plan are more satisfied and have more wealth. Avoiding emotional mistakes improves an investor’s bottom line.
As a side note:
The old stockbroker’s manual still says ‘Sell in May and Go Away’. Probably for good reason. Historically, the summer months are filled with languid or down markets and volatile ups and downs.
While it’s tempting to give in to the emotional ‘flight’ survival response that you’re feeling right now, don’t give in. Stand and fight instead. But fight smart. Have a plan and consider a professional navigator.
If you are seeking a second opinion or need some help in implementing personal money rescue plan, please consider the help of a qualified professional.