It’s been a habit of mine to do a financial checkup in the first few weeks of fall. I think of it as a sort of a “getting back to business” review of the portfolio and other financial issues after a summer of fun and sun. Maybe it’s a throwback to my school days, which was more years ago than I care to admit!
This is a useful habit for any investor. Taking time to reflect before diving back into fall routine helps clarify next steps for getting your financial house in order over the coming months.
This year, my fall checkup will be even more important. We’ve been living in “interesting times” finance-wise, with volatility that has played havoc with asset allocations and shaken the confidence of most investors.
Here are three critical questions I’ll be asking myself over the next few weeks.
What are you doing to mitigate downside risk?
The summer of 2011 will be known as the summer volatility came back. And while most high-net-worth (HNW) individuals are used to market corrections, the “whipsaw” markets we’ve seen over the past few months have been difficult to handle.
I’ve performed a “what if” analysis on my portfolio – a detailed, quantitative stress test to see what would happen should volatility strike again. I’ve increased my allocation to long/short equity managers, placing additional funds with managers who can profit from further volatility. And I’ve started using options (primarily puts) to protect myself against further downside. There are now several ETFs that offer the same kind of protection on a more diversified basis; they’re worth a look.
Where are you seeing opportunity?
There will always be doomsayers who look at volatility and scream, “the sky is falling!” But if you’re a glass-half-full type of person (and I am), you understand that within crisis lies opportunity. Here are three contrarian ideas that I’ll be investigating further over the fall, with the intention of allocating some of the portfolio to one or more:
(a) Europe – particularly high-quality blue chip equities, which I believe have been unfairly tainted by the debt crisis over there.
(b) U.S. financials – Warren Buffett, Bruce Berkowitz and others have been buying up U.S. banks during the summer volatility. One could do a lot worse than follow their lead.
(c) Technology – tech has really taken it on the chin this summer. But “old tech” stalwarts have very healthy cash flows and strong balance sheets.
What about your will?
I’ve asked my clients this question hundreds, perhaps thousands of times, over the years. It’s a sincere question, but it’s never hit home like it has this year, after my sister passed away in January. It was a difficult time for my family, made more so by the speed with which my sister’s health deteriorated, her young age (she was 39) and the great rush in which her intentions had to be planned, organized and executed. Her estate was complicated, and, as her executor, there were several legal and other difficulties I had to overcome.
That’s why I’ve made it a top priority to review my own will and estate plan this fall. I’ve made a commitment: my heirs will not experience the same difficulties as my sister’s.
If it’s been a while since you’ve reviewed your will or your estate plan, put down this newspaper now and get it done. Indecision and lack of preparation have real consequences for your loved ones. Take it from someone who knows. •
