Seven Things to Remember

Overworked and tired young woman in front of computer

My Summary Notes for Radio Interview… 7 things to remember

I don’t know what the financial news is going to be several days after I write this article, but the last three days have been headline news.

Dow Jones Down 358, Down 531, Down 588.

This morning (August 24, 2015) I received a phone call from a radio station asking me to be a guest on their program to discuss the current economic news. Below you will find a summary of what I communicated:

1. General Advice: I cannot offer specific investment advice on a radio program. So everything I am about to say is general information.

2. Be Pro-Active not Re-Active: The most important time to plan for a major economic event is before it happens, not while it is unfolding. So in other words, you need to be pro-active in managing your investments not re-active. Over the years trillions of dollars have been lost because of two emotions: Fear & Greed. We sell when the market is falling because of fear, or we buy at the top of a market because of greed. If you can avoid making decisions due to fear or greed – you are probably on the right track.

3. Be Diversified: The key to avoiding major investment losses is to be diversified. If 100% of your investment portfolio is in the stock market, you have a good reason to lose sleep at night. Why? Because you are not diversified. What if 15% (1/7) of your investments were in the stock market and the other 85% (6/7)were invested in six other areas (real estate, precious metals, bonds, cash, international).

4. Keep Everything in Perspective: A drop in the Dow Jones of 1,000 points if the index is at 18,500 is 5.5% compared to 25% if the Dow Jones is at 4,000. I remember October 19, 1987 when the Dow dropped 508 points. The Dow index was at 2,246 the day before. This 508 point drop represented a drop of 23% in one day.

5. Monitor Your Stress: If you cannot sleep at night because of your investments, you need to re-diversify. Our investments should never cause us excess stress to the point we cannot sleep at night.

6. Real loss vs Paper loss: Every day you can have paper gains or losses. It is not until you sell that you actually incur a real gain or loss.

7. Wise Stewards: Wise stewards do not become over confident or prideful when the market is up, nor do they stop trusting God when the market falls. We trust God in the sesons of economic prosperity, recessions and seasons of economic depression.

Leave a comment and share your thoughts or ask a question.

Ethan

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