S-L-O-W growth is forecasted for the global economy, meaning higher risks and sub-par investment returns. Extreme market ups and downs are expected to be the new normal. Some economists forecast a 30% chance of a double-dip recession. What can you do in the face of such a dim outlook?
Doing nothing isn’t the answer. This is no time to close your eyes and passively wait for things to get better. Start by tuning out the headline news. Stay calmly focused on you and your unique situation, but from a different perspective. The “winners” in the new fiscal world order are those who shift attention from managing investment returns to managing risks, careers and lifestyle. In the words of esteemed financial author Charles Ellis, “If you manage risks, the returns will come.”
- Do a personal SWOT analysis. Rate each of the following seven areas as a strength or weakness, opportunity or threat (SWOT) to your financial wellbeing.
- Career: How secure is your job? What can you do to make yourself indispensible to your employer? How marketable are your skills?
- Income: How reliable is your income, wherever it comes from – wages, investments, rental property, business? What can you do to protect and even increase income? What drives your income, for example, does your income go up and down with the economy and/or stock market?
- Personal spending: How low can you go? What’s the cost of your most basic spending needs? Calculate the cost of “extras”—the expenses you can cut.
- Savings: How high can you go? The more you can save, the less heavy lifting you need from your investments.
- Debt: Tally up your loan balances, rates (fixed or variable) and monthly payments. What you owe eats into what you own, and your ability to be financially flexible.
- Health: Wealth and health go hand-in-hand. Is your health an asset or liability?
- Investments: Contrary to popular thinking, your age and time horizon matter, but are not the primary gauge of how much investment risk you can bear. Assess whether your investment strategy takes into account all the strengths and risks in your situation. If you must turn a blind eye to your investment statements in order to cope, it may be a sign that you need to make changes. Get unbiased, expert help if you’re not sure how to downshift the risk in your investment strategy in the most tax and cost efficient way.
Once you manage your risks, career and lifestyle to your best ability, breathe and let go of the worry. What more can you ask of yourself? Stay grounded in what “living a rich life” means to you. Just as often as you open your investment statements, unlock your personal treasure chest, and tally up your most cherished “valuables”, like family, friends, health, and a sense of purpose. Always wanting more, and taking excessive risks to get more, is an unsatisfying and stressful way to live. In good times and bad, true wealth is the peaceful feeling of knowing you are a wise, prudent and appreciative steward of all you are blessed to have.
Karin Maloney Stifler, CFP®, AIF®
President
True Wealth Advisors
Hudson, OH
