A Road Well Traveled

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2/8/10

Are we destined to go down that same road, the road traveled by Japan over the last 20 years.

As you probably know the Japanese stock and real estate bubbles preceded ours by a few years, and they’ve been mired in a no growth/slow growth economy ever since.

Could it happen here? Is it already happening? Certainly questions no one can answer with certainty. The real question is are we ready for such a scenario? What steps can we take to handle and even prosper from such an outcome?

Some would say stock up on canned goods, TP and ammo. Others scoff at such an event ever happening in the good ole USA.

I guess I’m somewhere between those two camps. I don’t believe Armageddon is on the horizon nor do I think a rapid return to giddy prosperity is in the cards any time soon.

I do believe a no growth/slow growth economy is a very real possibility. This would likely be accompanied by a long term sideways stock market.

So, what to do? There are no simplistic and easy answers of course, but there are a number of steps we can take to protect our financial security. A few are highlighted below.

Step 1: Build an ‘All Weather’ portfolio composed of deflation hedge investments like high quality, short to intermediate term bonds/bond funds, guaranteed annuities, and short term bank accounts.

Step 2: Add inflation hedge vehicles to the portfolio including domestic and foreign stocks or funds, sprinkled with holdings in real estate and commodities.

Step 3: Be prepared for violent and fast moving market whipsaws, meaning market movements in either direction and of short duration. And have an action plan in place to deal with them.

Step 4: And most important, have an exit strategy. The type of strategy(s) I’ve talked about in many bulletins, blogs etc. That exit plan should be designed to get out of any specific investments before they move dramatically against us.

It should also be designed to exit the stock market entirely, if necessary. No one, at any age, can afford the kinds of losses visited upon so many in recent years. A ten year go nowhere market coupled with jaw dropping declines has certainly imbued loss prevention into our collective DNA.

Step 5. Last but not least, retain the services of an astute and proven financial advisor who has done all the above. Shower him with referrals and chocolate chip cookies whenever possible. He will be forever grateful.

Note: The usual caveat here. No investment program comes with guarantees. There is inherent risk in all we do in the investment world.

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