America’s Top Financial Bloggers: What is the Best Way to Manage During Difficult Economic Times?
by Efin Advisor | July 1, 2009
By Chad Brand
Chad Brand is the founder and President of Peridot Capital Management LLC , a registered investment advisory firm specializing in personal finance and investment portfolio management services for individuals. Chad’s blog, The Peridot Capitalist has been recognized by major media outlets such as Forbes as one of the top investment blogs in the United States since it launched in late 2004.
There is a television commercial airing right now from Charles Schwab that I think sends a very poor message to those of you who are wondering how you should change the way you manage your finances and investments during the current economic downturn. The lady in the commercial points out that she used to take a hands off approach to her investments, but now that the economy is in decline and the stock market has fallen dramatically, that strategy seems crazy.
I was surprised by this commercial, especially coming from a reputable company like Schwab, because I think it sends the completely wrong message to those who are trying to navigate difficult economic times by making smart financial decisions. The woman in this commercial implies that since times are tough she believes that is reason to dramatically alter the way she manages her finances and investments. Is dramatic change and action really the best strategy?
As a professional investment manager, I don’t think so, in most cases. Too many people I have seen and worked with have made the mistake of making sudden and dramatic changes based solely on their emotions, not sound financial advice. I have had clients who, during the stock market’s worst days, called or emailed me in a state of panic and wanted to know if they should sell off all of their investments. People who sold based on emotions, simply because things were tough, made a huge mistake. The stock market has rallied more than 40 percent from its March 2009 low and those people missed out on it.
Changing your strategy simply because times have changed is not necessarily a good idea. Going back to the woman in the Schwab commercial, don’t you think the question she should have asked herself was “How strong is my current investment plan and strategy?” After all, if her current plan was being implemented well, it might not be so “crazy” to just let it continue unchanged.
Now, if she had no plan or was neglecting her original plan, then we could surely make the argument that it was “crazy” to continue on that path. However, whether the economy or the stock market are doing well should not have any influence over these decisions. Implementing a sound financial plan will work wonders for you regardless of economic climate, which in turn prevents you from needing to worry about things when times get tough, as they are today for many people.
What are your investment strategies for tough times? Can you alter your investment strategy without a dramatic overhaul?
Thanks Efinancial for this award program and thanks Chad for this really great advice. I knew a lot of people who did get emotional at the start of the recession and i always told to stay the course, but a lot of people didn’t believe me. I think you do a really great job of explaining why you should stay put. I’ll have to share this advice with others
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When this crisis first hit, I’ll be honest: i started freaking out and sold a bunch of stocks to try and cut my losses. I regret it so much and wish I had contacted some stock brokers for their advice. The economy is going to get better, stocks will be back to normal and it will happen soon enough. We should all just realize these things go in cycles and the cycle must end eventually
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I think this article is good advice on a personal level, but even better advice on a greater economic level. Its panic that deepens a financial crisis, as people withrdaw their money from the market, stifling business in the proccess. If we keep our money in the system and keep a deccent level of consumer confidence, this whole mess may have been even shorter than it is going to be
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I’d like to mostly address the second question posed. i think you can change without an overhaul. If you make minor shifts like switching some money to safer stocks, or invest future money in industries that you think can thrive during a recession, that may be a beneficial strategy. I’ve always thought that investing in fast food makes sense when times are tough because the food is so cheap.
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I just personally disagree, though I respect your opinion. You have to adapt to the situation at hand. If you are invested in certain types of industries, there may be good reason to believe that these industries are not going to survive this crisis. Tehere is also probably a good chance that you will lose a ton of money. I’m not talkign about just emotion, i’m worried about my financial future. I’ll invest in safe cds instead of riskier stocks that i’ll lose i’ll my money in. The thign to remember is, even if things bounce back, its unlikely that a stock is goign to get as high as it used to be if it has a dramatic fall
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