When I started this series, we carefully selected the title, “It is not about the money” so we didn’t look like one more supposed investment guru giving this week’s hot tip. Our wealth advisory practice is built on helping clients live their dream lives. In doing so, acquiring and managing money (assets) is just part of the total picture. We wanted to focus the reader on the truly important things in life, while recognizing that money is just a tool in achieving dreams.
Unfortunately, events of the past 18 months have changed all that. Even the wealthy are now panicked. We started noticing it in our client calls a few weeks ago. Up until then, they were concerned. Are we invested properly? Will we be positioned to benefit from the recovery? Do we need to reduce our equity exposure? Now the questions are more desperate. Are we losing everything? Will we be able to survive?
Of course, these questions are not rational. But, they are very real concerns to the callers. The global recession has taken its toll on everything. Even cash is not a safe place to hide. There is no end in sight, and many reasons to believe things will get worse before they get better. The government is printing money, but banks refuse to lend it. Consumers aren’t spending, resulting in businesses laying off workers, resulting in more homes in foreclosure. Everyone waits for the bottom for things to “return to normal.”
But, there is no more normal. The economy that was built by “irrational” debt is over. There will be an end to all of this, and for most investors, there will be some value in their portfolios. However, it will be a very different world. The highs of 2006-2007 were illusionary. The price of real estate, the value of your home, your business and your investments were based upon an economy awash in debt. The “new” economy will not have the luxury of financing its future on debt. Unfortunately, it will be saddled with the repayment of the debt now owned by the taxpayers.
Punitive new “wealth” taxes will slow grow, while average taxpayers struggle to save enough for retirement. Reduced spending and low real estate values will lower tax collections and strap local governments. The typical wealthy American is a business owner who will respond to increased taxes (personal and corporate) by reducing employment, not expanding operations, and suspending high-end discretionary purchases. This will further compound the loss of tax revenues.
So, it is about the money. The money you currently have needs to be protected and positioned to respond to what comes next. What stocks will fall out of favor as government spending floods certain markets and dries up in others? What will national health care mean to drug companies? What bonds will protect against the eventual inflation? How much more might your portfolio go down? Now is a great time to have your investments professionally reviewed to prepare for what comes next.
Filed Under: News