Investing in Ben Bernanke's World: Financial Advisor Gives Four Tips to Manage Investments in Light of Federal Reserve Moves

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According to Jim Coleman, an independent financial advisor, while headlines fuel debate over whether the Fed has made the right decision, there's a more immediate concern for investors. "Investors should be asking themselves whether the Fed's traditional tools need re-tooling to fix the current financial crisis and restore market confidence, or do they need to make unprecedented moves of their own?," inquires Coleman. Coleman says that rather than matching one extreme move with another, investors should follow time-tested strategies to guide you through what is an extraordinary period in market history. Coleman offers four tips to make sure investors are reacting rationally to the Fed's economic policies.

As precedent-setting as the Fed's moves may be, headlines are written to sell newspapers

Over the past several months the Federal Reserve has taken steps to try to stabilize financial markets, bolster the national economy and stave off a recession. With virtual meltdowns in subprime mortgages and the credit crunch many Americans, including Federal Reserve Chairman Ben Bernanke, believe we are headed for tougher financial times.

According to Jim Coleman, an independent financial advisor, while headlines fuel debate over whether the Fed has made the right decision, there's a more immediate concern for investors. "Investors should be asking themselves whether the Fed's traditional tools need re-tooling to fix the current financial crisis and restore market confidence, or do they need to make unprecedented moves of their own?," inquires Coleman. Coleman says that rather than matching one extreme move with another, investors should follow time-tested strategies to guide you through what is an extraordinary period in market history. Coleman offers four tips to make sure investors are reacting rationally to the Fed's economic policies.

Seek Real Information
"As precedent-setting as the Fed's moves may be, headlines are written to sell newspapers," says Coleman. "In times of market volatility, it's important to dig a little deeper and to put market events in context." While it can be a time-consuming exercise, Coleman believes it is time well spent and can often uncover surprises or little-reported facts. For example, a recent Ohio state study indicated that Americans may own a larger share of their homes than is suggested by a Federal Reserve report. The Fed had reported that in 2007 Americans' percentage of equity in their homes fell below 50 percent for the first time since 1945, to 47.9 percent in the last quarter, meaning that banks and mortgage companies own the greatest share of American homes. However, subsequent analysis by researchers at Ohio State University discovered that the Fed study failed to account for homeowners who have paid off their mortgages. "Factoring in the people who had paid off their homes already helped to raise the average homeowner share of equity to about 70 percent, significantly changing the dire picture of the housing front."

Take a Global View
There aren't many people who wouldn't agree that the U.S. economy may be faltering, but there are investment opportunities elsewhere in the world. For instance, while the Economist Intelligence Unit's 2008: Country by Country forecasting guide predicts that U.S. economic growth will slow to 1.5% due to continued financial-market turmoil and increasing housing market woes, analysts expect robust double-digit growth in many emerging market countries. Against the backdrop of slow growth in the world's two largest developed economies, the United States and Japan, fastest-growing countries in real GDP growth are expected to be Angola, 21.4%; Azerbaijan 17.4%; Equatorial Guinea, 11.7%; China, 10.0%, and Liberia, 9.5%. "The bottom line is that the downturn in the U.S. underscores why it is so important that investors have not just a diversified portfolio, but one that is also globally diversified," says Coleman.

Control What You Can
Market volatility, interest rate fluctuations, and inflation are factors over which investors have no control. But according to Coleman investors can control the manner in which they save, how much they save, spending habits and when they decide to retire. "While the fact that many Baby Boomers are delaying their retirement may fuel economic worries, for some, putting retirement off
for a year or two could be a prudent move, just as carpooling helps combat high gas prices," explains Coleman. "The point is, especially in periods of market volatility and unprecedented federal responses, it's important to ensure you make decisions based on reason, not emotion.

You can bet long hours of analysis went into the Fed's recent decisions!" Coleman advises that at times of market turmoil it is important to return to a well thought out financial plan to ensure the investor's portfolio is properly diversified and reflects specifically your own risk tolerance. "If you're living on a fixed income, evaluate your withdrawal rate to ensure that your current spending isn't jeopardizing your long-term asset preservation," says Coleman.

When In Doubt, Ask for Help
"If you're feeling overwhelmed by market events, you are not alone," says Coleman. "Study after study reports waning consumer confidence and American's general dissatisfaction with the economy." Coleman says that now might be a good time to touch base with a trusted financial advisor. And if the investor has not worked with an advisor, now might be a good time to reach out. Additional financial expertise and historical perspective could be the needed medicine to put investor's minds at ease. It is highly probably that what worked well over the last two decades or while you were accumulating your portfolio, may not work as well going forward especially during the distribution/income phase of your portfolio.

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Jim Coleman

Al Martin
Impact Communications
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