News and Events

March 16, 2009

Guidance for Turbulent Markets

What began with a credit crisis in the United States has turned into a global recession and nearly all markets have been pummeled. There has been a general concern about jobs and income so spending has been given additional scrutiny. This in turn has led to additional strains on the economy. The market reacts to round after round of disappointing news, and suddenly the shrinking value of our life savings has turned into a critical issue.

Here are some key points we have been focusing on:

Diversification

One term often bandied about in the financial planning world is asset allocation. Technically, asset allocation means having portions of your investments in different asset classes (e.g., cash equivalents, stocks, bonds, real estate and tangibles) in order to reduce risk. The general concept being that when one portion of a portfolio suffers, then another can provide stability.

Asset diversity is no guarantee against suffering losses, but it does reduce risk. Even with appropriate asset allocation, some parts of a portfolio may struggle at any given time, the goal being to have less downside risk than one would with total exposure to the market.

In essence, asset allocation means not having all of your eggs in one basket. What was yesterday's safe and AAA investment may be tomorrow's problem. We have no crystal ball to tell us where to be positioned so regardless of whether you are in the accumulation phase of investing or in the retirement income phase, diversification of your investments should be a key part of your strategy.

Play Defense

A common investment strategy used during recessions is investing in defensive sectors of the market such as food, consumer staples or utilities. I particularly favor pursuing high dividend yields from quality utility stocks. They are not immune from the overall market movements, but their dividends may potentially help cushion the impact of price swings.

According to Standard and Poor's, dividend income has represented roughly one-third of the monthly total return on the S&P 500 since 1926, ranging from a high of 53% during the 1940s to a low of 14% during the 1990s when investors were more focused on growth.

Continue to Save

Everyone has heard the old investment adage: The ultimate goal is to buy low, and sell high. What we are experiencing right now is what it feels like to buy low. It is a very uncomfortable feeling, which is why so few investors are able to follow this discipline. Dramatic headlines create worry, but dramatic headlines also indicate buying opportunities.

For those still in the accumulation phase of investing, a down market offers opportunities to buy shares at prices we haven't seen for some time. Rather than trying to time the market we should opt to continue our systematic purchases, especially in our retirement accounts.

Don't Panic

Bear markets are often the inverse of bull markets, seemingly endless down days with new record setting lows. It is human nature for people to become discouraged and have the urge to cash everything in order to prevent further losses. This might be all right for someone who is risk adverse and with a limited time horizon, but for those still accumulating for retirement this could be a mistake.

One of the important lessons learned from studying the impact of recessions on the markets is the most significant gains tend to arise after the deepest declines. In order to take advantage of these recovery swings, investors have to be positioned in the markets and not on the sidelines. If one were to cash out now, they would certainly be locking in their losses and missing out on any potential recovery.

Should you need to adjust your portfolio during a period of turmoil, it would be a good idea to implement those changes in gradual steps. Because the markets are always uncertain, taking gradual steps is a good way to spread risk out over time.

Take Advice From a Financial Coach

Investing is one of the most difficult activities we undertake. Do seek out the advice of a qualified Financial Advisor for coaching through the ups and downs of the emotional investment roller coaster and try to remain focused on your long-term goals.

Shelby Davis, a renowned investor, put it best: “You make most of your money in a bear market. You just don't realize it at the time.”

Todd Osborn

Occupation: Financial Advisor and Branch Manager of Raymond James Financial Services, 1225 W. 6^th Ave.

Family: Wife, Lisa.

Memberships: Emporia Rotary Club, Emporia Area Chamber of Commerce, Emporia’s Multi Use Path Planning board.

Hobbies: Mountain biking, backpacking, hiking and photography.

About Emporia: The Osborn family has been serving investors in Emporia for over 50 years.

THE LOVE OF MONEY

by Todd Osborn

Right after the bottom fell out of the market, I had a conversation with a local minister. Referring to the old adage he said, “Remember it's not money, but it's the love of money that's the root of all evil.” I found myself pondering this expression for some time.

The first thing that comes to mind when considering the love of money is greed. Greed makes me think of the investment bankers who helped create huge appetites for their mortgage derivatives, the mortgage brokers who fulfilled the need for product, and of course the purveyors of Credit Default Swaps who magically pioneered a way to spread all this risk around. What we all know now was their greed was not good for us.

The less discernible side of the love of money is our attachment to it. Money definitely holds a position of prominence in our society. It seems to trump everything else in debates or discussions about matters of importance. When our personal portfolio values dropped because the markets fell, we naturally became obsessed and worried about it.

I was out in the Flint Hills one evening considering these matters when it occurred to me the natural world around us hadn't changed at all. The financial morass we found ourselves in was just a man made phenomena. Our relationships with our friends and family hadn't changed either, unless of course, we made it so because of our concerns about money.

Deepak Chopra recently wrote an article about how to be happy in a recession. He said it was human nature to contract with fear. “Fear deprives people of choice. Fear shrinks the world into isolated, defensive enclaves. Fear spirals out of control. Fear makes everyday life seem clouded over with danger.” Seem familiar?

He offers that we shouldn't obsess anxiously over what we could lose. He then asks what makes for true personal happiness? “Relationship. Gratitude. Appreciation. Compassion. Mutual regard. Strong social connections. Love you can trust.” Unfortunately, he says it often takes a crisis to bring out those fundamental human qualities.

I have found my solution for changing perspectives can be as simple as getting outside either on a bike or through hiking. I think this works because I tend to replace whatever I was thinking about or dwelling on with something entirely different. Participating in such activities for me is a means of revitalizing myself.

Let me relate by example with a trip report from a recent backpacking venture I did with a group in the Ozarks:

“On the third day of our trip we found ourselves hiking most of the day in a nasty sleet storm. As we neared the eight-mile mark we were on the hunt for a good campsite. No one was looking forward to pitching their wet tents on the ice-covered ground. As the trail rounded a corner and hit the hollow, we discovered this incredibly perfect overhanging cliff, forming a cave complete with a fire pit, some stone benches and even a stash of dry firewood.

Everyone pulled up and dropped their packs. We then commenced to get in touch with our ancestral caveman survival instincts. Such things as building a big fire, drying out shoes, socks and all the wet gear we had accumulated, and hot meals. We each found plenty of dry ground under the overhang to stretch out our sleeping bags for the night. The warm fire was greatly appreciated by all.”

Do you think I was thinking about work when I was hiking in the sleet storm? Or was I worrying about my life savings when we all settled in at the cave? Doubtful. Such worries had obviously been replaced with new concerns.

I have found that trips in the wild can often lead to situations of adversity like the hike we did in the ice storm. The probability of our stumbling across the cave at the appropriate time of day was simply phenomenal. Such experiences help you find true appreciation for the simpler things in life and put complex worries like our financial concerns in perspective.

There are things in life that each of us enjoys doing. Hobbies we might have; be it gardening, golfing or fishing, these are the things we should be scheduling time for and pursuing. They help us get our minds off of things we tend to be preoccupied with, which in turn refreshes our focus and thus provide for our well being.

Todd Osborn is a C.M.F.C., Financial Advisor with Raymond James Financial Services, Inc. Member FINRA/SIPC located at 1225 W 6th Ave., Emporia KS 66801. Todd Osborn can be contacted at 620-343-2216.

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