I recently finished reading a book that reminded me to keep things in proper perspective. I can’t say that the book is directly related to work matters, but there are parallels that can be drawn between the book’s message and our world’s current economic condition and how we feel about our financial condition.
Indeed there are plenty of things wrong with the US economy and that of the world right now. It’s difficult to ignore the lackluster post recession recovery that media outlets seem to have no problem speaking of. Even more prevalent are the problems in Europe and Greece. Admittedly, we must acknowledge these problems and face a real possibility of continued slow moving growth. The problems with the United States’ ongoing debt crisis and those of our neighbors across the ocean seem easy enough to understand on the surface. However, fixing these problems and the ripples that will be felt around the world is entirely something else.
In the face of such concerns, we are often asked “What should I do?” To answer that, it goes without saying that fear often grips us and can cause us to make some very unwise decisions, such as allowing our fear to consume our thoughts and force us to become a seller of investments when we should be a buyer. The counsel we provide for our clients often includes a discussion of what our clients already know and in times like this, can not be reinforced enough: diversify.
Simply put, when we are planning a strategy with an unknown outcome, our plans tend to include a way of “hedging our bets.” In my opinion, this is just another way of saying that we “diversify the outcome” of a particular situation. As investment managers, we do the same thing with the investments we buy and sell for our clients. This diversification includes constructing portfolios comparable to a relevant benchmark, not overweighting the portfolio in favor of one particular asset class or investment, and not attempting to second guess the stock market. Instead, we build portfolios based on a client’s tolerance to take risk by including a broad range of stocks, equity mutual funds, cash, and as appropriate, fixed income mutual funds, and individual issues.
But what do we do after we have diversified? Is there anything else? I would offer that we can shift our focus on what we can control. That is, limit and decrease debt, increase savings, and monitor our spending habits. Beyond that, it is my desire that investors focus beyond their current financial situation and begin to focus on more important matters. And this brings me back to the book I mentioned above. Yes, our investments, earnings, savings, diversification, matters that we can control, are all important. But at the end of the day, I believe we need to set these aside and focus on being the most important person we can be to the people that love us the most.
In closing, I offer the following thought about a plaque I have in my office. A colleague once jokingly commented that I need to get it “compliance approved” (that is to say, be able to prove that it is true). The plaque reads: “The best investment: Time with a child, a good morning kiss, a simple I love you.”
Neal Nolan, CFP®