Broker Check

Maintaining A Cool Head During These Times

October 2008

With all that is happening in the financial markets, you may be asking yourself, how should I respond?

As a client and friend of Sherpa Financial Advisors, we want to help you with this question. We suggest you begin by turning off the television. Avoid the constant stream of negativity coming at you from television and the internet. Subjecting yourself for the umpteenth time each day to “the sky is falling” messages will do nothing but depress you. Set yourself free. Go read a book. Exercise. Play a game. Do something fun with your spouse.

If you’re already doing the above, just toss this letter and keep doing what you’re doing. Or pass this letter along to someone who needs perspective.

Do not react in fear and panic. It is the natural thing to do, and it is the worst thing you can do. This is not the beginning of the end. You will be OK. Call us before you take any action to change your investment portfolio. We’ve spent the last 27 years helping our clients avoid making major mistakes. We’ve thought about this long and hard. If we were to sit down and have a heart to heart talk, here’s what we would say:

  • There is good news: your survival depends on something over which you have total control - your behavior.
  • There is more good news: your survival does not depend on things over which you have no control - the economy, bailouts, elections, the housing market, tight credit.
  • For the sake of your sanity, do not depend on Washington to solve this. Take control of your own life. Don’t blame someone else for imposing misery on you. You will be miserable only if you allow yourself to be miserable.
  • Your current emotional condition is not caused by the economy. It is caused by how you are thinking.
  • The current market situation will end. We do not know how much further down it will go. We do not know when it will end. But it will end.
  • If you react in fear and panic, you will turn a temporary loss into a permanent loss.
  • Selling is the worst thing you can do in this market. When there is chaos, great opportunities are created. When the masses are selling, smart investors are buying.
  • Markets go down when there are more sellers than buyers. The time will come when there are more buyers than sellers. The time will come when people realize that bargain prices have been created and this will force the markets up.
  • Those who persevere in this market will be rewarded.
  • Use this time to learn some lessons. Real estate does not always go up in value. This is true despite the adage, “They aren’t making any more of it.” Beach property does not always go up in value. Rental property doesn’t always go up in value.
  • We are being purged as a nation. Greedy lenders are being purged. For the sake of money they made loans they should not have made. To avoid the risk of non-repayment they sold the loans to someone else. If they did not sell the loans, appreciating property values would bail them out. But property values went down instead of up.
  • It isn’t just greedy lenders and corporate executives who created our problems. We all contributed to it. We lived above our means. We spent more than we made, and we funded it with credit cards. We took out home equity loans to pay off the credit cards. We refinanced our home to pay off the home equity loan. We assumed that we wouldn’t get in trouble because increasing property values would bail us out. It caught up with us.
  • Learn some lessons that will serve you well in the future. Start spending less than you make. Save more than you have been saving in the past.
  • Establish a financial “finish line” and learn contentment. Doing this can turn a potentially negative experience into one of the most liberating experiences of your life.
  • After our economy is purged it will likely be stronger than it was before the purging.
  • If you are a client of Sherpa Financial Advisors, it is highly likely that your investment portfolio has declined significantly less than the overall market. It is likely that your portfolio consists of about 10-20% real estate investment trusts and may contain 5-10% in managed futures investments. These have served to add protection to your portfolio. They have not been negatively impacted by the stock market decline. The real estate investment trusts continue to generate dividends which are reinvested or distributed to you as income. If you don’t have an allocation to real estate and managed futures, give us a call. We’ll discuss its applicability to your situation.
  • Some of you have already used variable annuities with downside protection to limit market risk. If this applies to you, current market prices are irrelevant. If you are not aware of the protection variable annuities can provide, give us a call.
  • If you are a client of Sherpa Financial Advisors and have taken our advice, you are properly diversified.
  • Your beliefs become your reality. If you think this market will ruin your financial future, it will. It will damage your financial future because the belief will lead you to take actions that are not in your best interests.
  • Some of the most important words you will ever hear from us are, “Don’t do it.” Don’t take actions that will hurt you.
  • And please…..ignore the talking heads on TV. Ignore television talk show hosts. Ignore radio broadcast personalities. Jim Cramer and Suze Orman don’t know you. They are entertainers who are not accountable for the advice they dispense. Get your advice from someone who knows you and your personal financial situation.
  • Tell yourself the truth. Markets go up and markets go down. Sometimes the ups and downs are steep. Those who persevere through them will be rewarded.
  • Your time horizon is not one or two years. It is from now until the time you and your loved ones leave planet Earth.