Retirement Guys: Be prepared for the unknownsWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Looking back on the anniversary of 9/11, we believe every American can remember exactly what they were doing during the terrorist attacks. I, Nolan, was at home. My wife — we were still newlyweds —had already left for work. As usual, I turned on CNBC that morning. I was running behind, as I normally get to work before 9 a.m. So when I turned on the TV, the first plane had already hit the North Tower.
I just sat down and watched the live coverage, thinking how terrible it was for the people involved in this accident.
Moments later, I watched live as the second plane flew into the South Tower and immediately what seemed like a terrible accident turned into one of the worst terrorist attacks our nation has seen on non-military Americans.
Then they announced a third plane had struck the Pentagon. That was the exact moment in time shock turned into sheer panic for me. My brother was serving active duty in the U.S. Air Force and the month before had been stationed at the Pentagon. Seconds felt like hours and hours felt like days as I tried to call him and his wife only to get an “all circuits busy” signal or voicemail.
It wasn’t until hours later that I found out he not only survived the attack, he was busy rushing into action putting his medical training to work to help those injured at the Pentagon, staying on the scene until 8 p.m. His heroic efforts earned him the Commendation Medal for risking personal safety to support casualty rescue efforts that day.
As a young investment professional, I also learned a lot about how important it is to be prepared for the unknowns. After that event and the continued stock market meltdown that followed, we began to implement a process known at our office as The Independent Income System.
The system looks at critical information that could have a significant negative impact on a family’s financial situation if it is not discovered in time.
The process is now very detailed, but it can be simplified so all investors can potentially benefit from implementing a similar approach.
Remember that diversification means owning more than just a basket of stocks, bonds or mutual funds. Although diversification doesn’t guarantee against loss, if used correctly it can be a method to help reduce risk, avoid getting in a panic situation and can help protect against losses.
A good diversified plan, in our opinion, not only involves looking at personal investments in different time frames, but also looks at investing based upon income needs, various risks and unknowns. The obvious goal is to pick investments that go up in value, but the other goal is to protect investments, especially accounts that provide current income. Think about unknowns that will come up so a well-thought-out plan can be put in place.
One way an investor can accomplish this is to create separate “buckets” of money. A bucket for current income, a pay raise in the future, noncorrelated assets or investments that don’t all perform the same way, and equities and bonds for long-term growth potential.
Once those buckets are set up, determine what other possible unknowns should be addressed, like a health care crisis, higher taxes, lower company or government benefits, or not having a backup plan in place.
A common mistake we see many investors making in our opinion is still having too many eggs in one basket. How do you know if this is happening to you? Well, if you feel your personal savings go up and down just like the overall stock market all the time, it could be a good sign you may not have what we consider a properly diversified plan and could be a victim of the next unknown that knocks down Wall Street.
Trust me, Mark and I believe in America, we believe in investing in the long-term with stocks and bonds. Just remember it isn’t always about America, it’s about you and your family and the plan you have in place to address the unknowns you may be facing.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. nor its representatives provide tax advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.