Should you be concerned at all as Dow 17,000 approaches us and may have already happened by the time you read this article? Is hitting 17,000 going to be your friend to a more bullish market or will it be time for people to take their profits off the table and we will see a pullback? Is it really just as easy as putting the portfolio car in cruise control and just let it ride down the highway? Here are a few smart money moves lessons to learn so 2008 doesn’t happen to you again in the future.
- What’s Your Time Frame? In 2008, there were many parents who had saved for goals such as their children’s education only to see the balance of the accounts get cut in half. If your son or daughter has college tuition due in the fall, make sure the allocation of your assets matches your time frame.
- You Must Have A Risk Mitigation Plan- What we learned in 2008 is that diversification doesn’t always work the way we assume it will. Back in 2008, there were very few places to hide as many of the asset classes got hit hard, not just the United States stock market. Whether you look at programs such as stop losses or use insurance products like annuities, you need to determine how you will minimize risk in the event of a market meltdown.
- Don’t Let The Tax Tail Wag The Dog- Some people were reluctant to sell stocks or funds that had huge gains because there was going to be a tax liability from the sale. Paying taxes is never fun, but losing half your portfolio would be a lot worse- agree? Sometimes it just makes sense to take the profit.
- Invest In A Sure Thing- I have often heard financial advisors tell their clients to not pay off their mortgage because the interest rate on the house is really low. They will convince them that money invested will do better. However, paying off the mortgage is a sure thing no matter what happens in any type of market. Not to mention if you change jobs, start a business, or one spouse decides to stop working. Paying off your mortgage can give you a lot more flexibility.
- Be Wary Of Dot Com 2.0– Remember that back in 2000 it finally dawned on people that for a company to be worth significant value it actually had to be able to turn a profit? We are getting back into those days where money has to chase something because interest rates are so low in the bank. Be very careful about putting your life savings into one or two companies thinking you will hit it big because you might be looking at a similar bubble as we have seen in the past.
Dow 17,000 is going to be an exciting milestone if it occurs this week. What makes investors successful over time is turning their knowledge into wisdom. History has a way of repeating itself, so don’t get slain on the battlefield again like you did in 2000 and 2008.
The information provided is not specific investment advice, a guarantee of performance, or a recommendation. This is for illustrative purposes only. This material is not intended to provide legal, tax or investment advice. Clients should contact their own tax and financial advisors to learn more about the rules that may affect individual situations.