A good reminder

I got a note this morning from a certified financial planner that I really respect. It's a letter he sent out to clients. In the note,he makes an important point. In tumultuous times like this we all feel the need to do something. Anything.

But with a bit of reflection, it's apparent that "doing nothing" is often the smartest strategy:

We rarely need to 'do' anything significant when severe storms hit because of what we have already done (and not done) beforehand. We need to remind ourselves of this.

The latter is easy to take for granted: We are not unaware of what we really own. We have not virtually turned a blind eye to risk. We have not increased our borrowing to the hilt to multiply our potential gains. We don't list holdings at what we think (or hope) they will be worth at some future date. We have not fallen into the trap of over-confidence.

And what we have done and do know is significant: We have clearly stated policies, expectations and objectives. We have considered risk as well as opportunity. We have diversified precisely because of what we do not know with absolute certainty (or, to use a baseball analogy, because we know that the best way to strike out is to try to hit a home run). We have learned from the last time 'this' happened (2000 - 2002, and it was worse then) the kinds of mid-course corrections that can sustain withdrawals for income through even the stormiest of seas ... and published our findings for everyone to see. We have made sure that you have reserves or access to funds so that events we can't control won't unacceptably affect your lifestyle.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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