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Understanding the Current Financial Crisis: Where Should You Invest?

Trillions of dollars and millions of jobs are on the line as global leaders scramble to recover from one of the worst economic crisis since the Great Depression. The clock is ticking as some major financial institutions and industry giants teeter on the verge of bankruptcy. The crisis that began with the sharp decline in housing in the United States has proceeded to infect economies throughout the world due to a large degree by Wall Street’s excesses and blunders, dragging the US and much of the world into recession.

This is the first of two articles examining the current financial crisis that aims to help give you some perspective. The next article will provide you with timely ideas that you can use to emerge stronger financially. I can’t tell you when this will end or exactly how things will look from an economic or regulatory standpoint when we come out the other side of this crisis. Which, we will. What I can say is that capitalism as we know it is facing one of its biggest challenges. Economic principles that gained acceptance and widespread use across most of the world over the past 30 years are being tested.

Where should you invest? The answer isn’t as easy or straightforward as it seems. This kind of question really is so dependant on your own personal financial circumstances and perspective on risk that you should meet with a professional financial advisor to determine an appropriate mix of investments for you. What I can tell you is that the tsunami of financial information engulfing investors in these volatile times makes it more important than ever to have a well-designed investment strategy and to follow it.

Overstatement and drama are rampant in market reports these days. Outrageous commentary is hardly new, but in an age of “always –on” 24/7 communication, the constant drum of sensationalized messages is very stressful for many people.

Consider the impression created by hyperactive Jim Cramer, host of CNBC’s famous “Mad Money” show. During his show on September 22, 2008, when the US government was announcing their first draft of the financial bailout plan Jim warned “If this doesn’t work we’re going to have Great Depression II.” He repeated this doom and gloom prediction no less than four times during his one-hour show.

And Cramer isn’t the only one making attention-getting apocalyptic predictions, in fact, he is an astute investment professional – and performer – who has grasped and taken to heart the central reality of financial TV – it is ratings driven “infotainment” not thoughtful analysis or planning.

Scary headlines aren’t new:

Time magazine declared it “The Worst Economic Conditions Since the Depression” on their cover in June 1970.

August 13, 1979 cover of Business Week which trumpeted an article called “The Death of Equities.”

As you may recall, stocks rose from the grave not long thereafter in all both instances. According to Wharton Professor Jeremy Siegel in his book, “Stocks for the Long Run” stocks returned an average of 6.5 to 7 percent per year after inflation for the 200 year period between 1802 and 2002.

Successful investing requires filtering out useless information and focusing on what really matters. The perception of heightened risk makes us want to act. The internet is an unfiltered channel for an uncountable number of forums and bloggers whose education, competence and motives are hidden behind their e-mail addresses.

Instead of hiding your head in the sand, now is the time to focus and think “excellence.” It is very easy to get emotional with your money given all the dramatic headlines. However, dramatic headlines can tend to indicate a great buying opportunity. It’s often hard to think clearly when you are so close to the situation or under stress. Volatile markets and overly complex investment choices may make it difficult to evaluate the benefits of various investments and retirement plans on your own.

This is where a professional advisor can really help – working with you to understand your financial situation, helping you define long-term objectives, and providing you with a reality check in challenging times. A great place to start if you’re looking for a new advisor is by asking a trusted professional like your accountant who knows your situation for a few suggestions. They see the results of numerous advisors and most are happy to help.

For many people, finding the time and energy to focus on reviewing your investments or finding a new advisor is extremely difficult. All the more reason to take action now! The cost of procrastination can have a substantial impact on your retirement plans.

Remember, a ship in the harbour is “safe” but that’s not what ships are for.

 

© April Dorey. Articles, statistics and other data referred to or cited are intended to provide readers with potentially useful information for their own personal use. *Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. You should discuss any tax or legal matters with the appropriate professional. Reproduction without permission is permitted with due acknowledgement. The views expressed are those of the author, April M. Dorey, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. The information contained in this article was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.

 

For more information please contact:

April Dorey, B.Comm, FMA, FCSI
Financial Advisor
Raymond James
10th Floor, 1175 Douglas Street
Victoria, BC.
Tel. 250-405-2429
www.aprildorey.com

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