It takes a strong stomach — and unassailable advice — to figure out and adhere to an investing philosophy in today’s market environment.
One of — if not the — hoariest chestnuts in the real estate lexicon is that there’s only one thing that matters: Location! Location! Location!
Well, the same goes for anyone looking for financial health during this turbulent time: Diversification! Diversification! Diversification!
“Really, don’t put all your eggs in one basket,” said Chris Geczy, academic director of the Wharton Wealth Management Initiative at Penn and director of Jacobs Levy Equity Management Center for Quantitative Financial Research. “Even in good times, it’s important to be diversified. When the market is volatile like it is today, the more diversified you are, the better. Then you’re not exposed on a daily basis. And remember: There is no free lunch.”
Otherwise, all those people like Geczy and other financial geniuses wouldn’t be out in the world telling the rest of us how to handle our money. They would’ve struck it so rich they could’ve retired long, long ago.
The fact is, when you’re trying to interpret the market and devise an investment strategy, you need to not only be right knowing when to get out, but also when to get back in. That doesn’t happen very often.
“It’s extraordinarily difficult to time the market,” explained Temple assistant finance professor, Cindy Axelrod, a Certified Financial Analyst with over 30 years’ experience in the business. “If you say you’re out, you have to make two trades right — where people fail miserably is when they’ve made the right decision to get out, it’s difficult to figure out when to get back in. No one — professional or lay person — has timed the market on a consistent basis.”
For that reason, she said, it’s essential to not only come up with a viable financial plan, but to let an expert handle it. That way, the day-to-day emotional impulses watching the market go up and down and reacting accordingly don’t come into play as much. “Basically, the role of a financial planner is helping people understand their financial health and goals — and where they are now relative to those goals,” said the Lafayette Hill native, a member of Congregation Beth Tikvah B’nai Jeshurun in Erdenheim. “Develop a plan to take them from where they are now to where they’d like to be. It should be multistage: short-term, intermediate, long-term. But I tell students from Day 1: When you start working, one of the most important things is to contribute to a 401(k)” retirement plan. “That’s one of the biggest gifts you can give yourself.”
While foreseeing the day when you might need that nest egg is always smart, the appropriate investment strategy may well depend upon the number on your birth certificate. After all, younger people can afford to take risks, because even if they lose a bundle now, they figure to have more time to recover.
For those of us middle-aged or older, caution is often the watchword. “Folks of an older generation tend to be more risk-averse,” agreed Geczy, who just returned from a conference in Sao Paulo, Brazil, before heading off to Beijing a week later. “They shouldn’t be holding riskier assets. But it’s a challenge to provide yield these days. People are greedy for yield, which can cause them to be undiversified. Stocks are down. High-yield and interest rates are down. The balloon is squeezing, and there’s no easy answer.”
One 35-year veteran broker believes the economy is in such sorry shape, people might be better off stuffing their money in their mattress than putting it in the bank. According to him, it all comes from a $19 trillion national debt that shows no signs of diminishing.
“What’s happened now, because the debt is so huge, the Fed has run out of tools to solve it,” said the broker, who wished to remain anonymous. “We’re going to negative interest rates — you’re paying them to keep your money.
“I’ve been telling people the winner — if the system comes apart — will be precious metals,” he added. “The rest is risk avoidance. There’s no money. We’re just paying with an ever-increasing debt. Our only chance is, if we go into another crisis, people will do whatever they have to do to survive.”
Not everyone is as pessimistic, especially considering this is an election year. “Heading into an election year, it’s generally favorable for the economy and the stock market,” said Axelrod, who noted that she was one of the few women in her field when she began her career, whereas women now comprise some 30 percent of her colleagues. “If you look abroad, our economy is much healthier. There’s plenty of opportunity to invest now for an upside later. That goes across the board in terms of age. As you age, adjust your portfolio. Of course, depending on your age will determine how much you’re willing to risk.”
Just don’t lose sight of the big picture. “I hate to be ‘Debbie Downer,’ but I’m seeing a significant amount of fear in the market today,” said Geczy. “I’ve been concerned for the last couple of years.
“People like to have yielding assets, which is a challenge today. I tell them, ‘Blend your investments.’ If they’re low, make an adjustment to your lifestyle and standard of living. Hope is not an investment strategy. Know your spending rate and what you need.”
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