A warning bell went off recently on Wall Street that is spreading around the investment community faster than a viral video on YouTube. It is called the Hindenburg Omen and it is a technical indicator that says the stock market could be headed for more losses in the near future. The reason is a large percentage of stocks have reached a new 52-week high, along with a large percentage of stocks at the same time reaching a new 52-week low. The omen points out that the stock market is divided as to which direction to head in the near future. The stock market is at a tipping point. This year, the overall stock market has been stuck and hasn’t really gone anywhere. Yet we have four ways and one easy solution to deal with the Hindenburg Omen.

No. 1: Get your emotions in check. According to the recent Country Financial Security Index, only 39 percent of people rate their overall financial security as good or excellent. The less confident investors are about their current plan, the more their emotions can get involved and drive their investment decisions. Emotional investing can be dangerous. Avoid the urge to buy or sell based upon one report or indicator. Instead, focus on the trends. Make decisions based upon as many facts as possible.

No. 2: Have an exit plan in place. Both of Nolan’s children’s bedrooms are on the second floor.  Time and time again, they have practiced a fire drill so they know the exit plan if the house catches on fire.  For more safety, we have smoke detectors, added fire extinguishers throughout the house, and have a backup plan in case they can’t get down the stairs.  Yet, most investors we meet with don’t have a preplanned exit plan in place when it comes to their investments. This can be done by figuring out what the maximum loss your investment account could have had in the past 10 years. This is known as the maximum draw down of an account. Once you review the maximum draw down, if it is too risky for you, develop a new exit plan or add additional safety nets to the current plan.

No. 3: Focus on continued growth. For many retirees, protecting what they have and providing security for the future is the top goal. That is why we ranked safety as the No. 2 tip. Yet, have a growth plan in place for the future to fight off inflation, rising medical costs or unexpected needs that will come up.  It may feel good short term to move all of the money to a safe fixed account, but is that really a good strategy long term? The answer is it depends. If an investor has nearly unlimited resources, then the safer the better. Yet, many people need to realize that once taxes and inflation are considered, most 100 percent safe investments are still going backwards because they are losing purchasing power. Just because the Hindenburg Omen indicates warnings ahead doesn’t mean an investor needs to abandon their strategies and get out.  If the house isn’t on fire, don’t jump out the window —  just be prepared.

No. 4: Diversify strategies to generate cash flow in a flat market. This becomes even more important for retirees as the need for current income off of their investments becomes a higher priority. Diversification is a strategy that doesn’t guarantee against loss, but it can help reduce risk. Our philosophy is that diversification goes beyond the traditional investment approach and means an investor should diversify among investment strategies. For example, having six different investments that all perform pretty much the same isn’t what we consider true diversification. Adding in a cash flow strategy can be a way to help keep things moving in the right direction and can compliment other investment approaches.

The Retirement Guys believe that implementing each one of these strategies can have a positive impact on an investor’s game plan. As we always say, we are all about information. But as others point out, it is what is done with that information that determines the success of the plan. For more great tips and a 24-point checklist on getting educated about your individual investment plan, order a complimentary copy of our Investor’s Repair Kit online at www.RetirementGuysNetwork.com. Just click on the “Free Reports” tab.

For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities are offered through NEXT Financial Group Inc., Member FINRA / SIPC.  The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537.

Tags: Hindenberg Omen, Retirement Guys

This entry was posted on Thursday, August 26th, 2010 at 3:04 pm and is filed under Retirement Guys, Toledo Business Link.
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