Tuesday, January 22, 2008

“Don’t Panic!”

Arthur remained very worried. “But can we trust him?” he said.
“Myself I’d trust him to the end of the Earth,” said Ford.
“Oh yes,” said Arthur, “and how far’s that?”
“About twelve minutes away,” said Ford, “come on, I need a drink.”
- “The Hitchhiker’s Guide to the Galaxy” (Douglas Adams)

Readers of the Hitchhiker’s Guide to the Galaxy will recognize the soothing words (“Don’t Panic!”) found on the cover of each copy. They are intended to subdue the feeling one would get upon realizing that the world is coming to an end before lunch. Today.

Investment markets around the globe fell out of bed over the last two days with a domino-like series of bumps. The U.S. followed suit today (January 22). You probably heard a little bit about it. Screaming headlines and talking (shouting?) heads magnify the valleys even more than they magnify the peaks.

Now is a good time to review one’s personal investment time horizon. Do you need the money you have invested (“invested” as opposed to “saved” – one doesn’t put funds one has “saved” in the markets) in the “near future”? Each person’s definition of “near future” is different. For our purposes, let’s say it’s the next 12 months. If the answer to that question is “yes”, then the money should be “saved”, not “invested” [see previous writing: Word o’ the Day: Cash (ABC’s of Financial Planning)]. If you have “invested” money you will need in the next 12 months you are speculating, not investing.

If the answer to this question is “no”, then the best advice I can give you is: go for a walk. Review your asset allocation [see previous writing: Word o’ the Day: Asset Allocation (ABCs of Financial Planning)]. Add different asset classes to your portfolio.

“Don’t Panic!”

Questions? kimm@sweetwaterinv.com

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