This was a question my friend, Annie Kip, asked me recently:
“What do you do to make sure your savings are safe?”
She also included this: “I love your down-to-earth money management advice. I am wondering if you have a personal take on investing at this time. The stock market seems very risky right now. Of course, the conventional wisdom is to stay the course and ride out the ups and downs of the market, but I get the impression that we are living in a very different time than any other in financial history and may be on the brink of some really big economic problems in our country. The big crash we had a few years ago might be even bigger next time and I don’t hear any reason to believe it won’t happen again.”
After some serious discussions with my favorite money manager, (who also happens to be my my husband), we came up with the following:
We both agree that it’s entirely possible for another blow-up to happen. Nothing has been fundamentally fixed, banks are still holding bad assets, and the government doesn’t have the resources for another rescue now. That being said, and assuming you have an appropriate asset allocation to fit your circumstances, we’re both in favor of what you call “riding it out,” but this does entail actually “riding it out” if another big sudden drop (or prolonged sideways or downward trend) were to occur. Plenty of people say they will ride it out, but then freak out when the big market drop happens.
You could employ strategies available to “protect” your savings and investments but they will cost you in one way or another. The cost will come either through the actual cost of the “insurance” (perhaps by buying puts to protect your equity investments), or through reduced returns, by committing to overly conservative investments.
So, it comes back around to having an asset allocation that meets your goals, circumstances, and especially your risk threshold.
There is no secret formula, but be prepared, and stay the course.
Full disclosure: Neither my husband or I are certified financial planners, but we both have spent the past 20+ years reading about financial matters and personally managing our savings plan and investments.
What’s your investing strategy? Are you riding it out?