Handling Investing ‘Dangers’

Don’t be scared into making bad investment decisions based on what is in the news. The odds of Crete’s economic woes or Russian advances in Ukraine hurting your financial well-being are tiny.

Some of the most common phrases in the Bible involve fighting fear. “Be not afraid.” “Fear not.” You get through few nightly newscasts without hearing “danger” from an anchor. Whether we face a pending blizzard, new risks of drinking coffee or familiar risks of the stock market, messages seem designed to keep us in perpetual unease. Why?

A recent search through Google News for “danger” turned up 131,000 hits on everything from stranger danger to little kids to smog danger from the Sahara Desert in Africa. A trend? A rhetoric device? Whatever the messengers’ motivation, associating everyday activities with danger creates a sense that you must stay up to date on our dangerous world.

Without such warnings, how can you protect yourself and your loved ones?

This constant anxiety leads us not only to an unsettled daily existence but to many incorrect choices regarding our future, especially concerning finances. Every crisis touted as a danger to the U.S. way of living spurs us to yo-yo our financial plans.

You must sell securities. You must buy gold. You must stock up on bullets.

As financial planners, we constantly strive to help you and other investors stay disciplined and patient with plans to fulfill dreams and goals. The drumbeat of new perils in some food group or the financial problems of a postage-stamp country on an island in the Mediterranean poses potential havoc for financial plans and causes many to abandon a solid course – say, saving regularly or maintaining a buy-and-hold investment philosophy – at precisely the wrong moment.

Uncertainty roils stock prices up and down and stands as the reason stocks, or ownership of the great companies in the U.S. and the world, blessed only some investors with positive investment returns in the past few decades. Constant questioning of companies’ ability to overcome the Federal Reserve’s quantitative easing policy to suppress interest rates, concerns about the stability of the euro or some other headline worry gives many investors the excuse to bow out of the market – and out of potential future stock gains.

Your real threat in the modern era: living in retirement for more than three decades and trying to maintain and afford your current lifestyle. The real threat is not from eating an unhealthy hot dog at a ballgame but from your own decreasing purchasing power over time.

Attack this threat with the correct financial plan and then working with an advisor to help you stay patient and disciplined through the daily onslaught of so-called dangers.

Formal financial planning offers many tools to combat fearful decisions, such as creating an investment policy statement (IPS), which we use to help clients understand portfolio allocations through time and market movements.

The IPS formally describes how investment decisions relate to your goals and objectives, as well as the vision for your portfolio. Once we establish the goals and vision, the IPS details a suggested investment structure for managing the portfolio to accomplish these goals.

The structure includes various asset classes, portfolio allocation, and acceptable ranges to produce an appropriate level of overall diversification and risk over the investment time horizon, or how far ahead you want to realize your goals.

Lots of tools exist to create your financial future. Your first one is a rule: Be not afraid.

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Dan Crimmins is the co-founder of Crimmins Wealth Management LLC in Woodcliff Lake, N.J. His blog is Roots of Wealth.

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