Will GREED be the End of the Party?

(5-6 min read)

For a while now and I have remained cautiously... sometimes begrudgingly invested in the stock market. That said, I feel like the people worth watching (at least the ones whose perspective I respect) are scratching their head wondering what is going on. Truthfully, I am with them.

Some of the current market action shows an irreverence for prudence. It shows greed. Unlike Michael Douglas's line in the movie Wall Street where he flaunted the sentiment "Greed is good" as the only side of a financial coin, it does have another side.

There is a side of blind optimism that sometimes causes a failure to see the potentiality of the other side of things. The potential negatives that have the potential to wreak havoc on your financial goals. Not that I think the thing to do is stop investing, but it could certainly prove to be a good time to take a serious look at where you stand in your life and consider the context of your financial goals. Better to make the appropriate decisions now rather than under the duress of a barrage of falling investment account balances.

We need to understand intimately the difference between what is possible and what is probable.

It is entirely possible that the markets continue the grind higher with the spectacular returns we have had this year but when you look at probabilities it looks less and less likely in my opinion.

So what to do? For me the truth is to at the very least do the following...

1. Review your timeline. Take a look at your next one three and five year objectives. Re-position monies that you may need within the next couple years. If you have not had this conversation about what your objectives are (outside of investment risk and allocation) it is the time to do it.
2. Check your risk levels. Risk is not really thought about when things are roaring to the upside. It is usually a thought when you get the second or third statement that shows a negative account balance growth. It pays to be thoughtful about the levels of risk that you are currently taking in your portfolios. Doing that in conjunction with your timelines above can hopefully at least put you in a position of knowing where you stand. It has been true for me that when I am informed, I can make more thoughtful and informed decisions. Panic and anxiety are at heightened levels when you are in the dark about where you stand.
3. Build your financial safety net. Again we know this intuitively, but sometimes we pay a bit less attention when things are going well. If you have run low or just not gotten around to filling that bucket back up now may be a good time to get things back to where they belong. I think three months income is a good start, but circumstances will definitely vary. The point is to have resources that can tapped in the event of a financial emergency. Always have a SMART place to get money for the unexpected financial curve balls.
4. Pay down debt. It is easy to get a bit loose around debt as things are going great. We always feel that the money will keep rolling in and it may but the point here is to maintain flexibility. We all know that lower debt levels typically equal higher financial health but it also quells the doubts as we face some of life hardships. Debt decreases flexibility to respond to negative events in our financial lives and now (while it is not necessarily needed) is the time to make sure things are in order.
5. Be WARY of pie in the sky expectations. It almost always happens. In this part of the cycle, people are living life... selling businesses, homes, assets and they see how great things have been in the markets and use that as a basis to invest rather than seriously considering using the monies to solidify their financial foundation. Things like paying down debt at retirement or being really honest with yourself about how it would feel if the investments had a TYPICAL 20 / 30 percent downfall. This is especially important if you are anticipating using the proceeds for lifestyle from the above examples. In my opinion. Paying down debt is almost never a bad idea especially at retirement as there are so many other way to get access to the capital if needed. Circumstances vary and things like age, personality and risk all factor into the equation of your decision. It is also not a bad idea to only consider investing money in the stock market that you are pretty confident that you will not need for at least 5 years, but I would probably nudge you closer to 7 years. It is much easier to adjust to a short-term low return than it is to manage a large draw down because the stock market revalued itself because of some event that you have absolutely NO CONTROL OVER.

Having an authentic conversation with an adviser about your circumstances is a great way to lay the foundation for great decision making to hopefully weather the next economic storm. While no one knows the future, we can all take action based on our circumstances that can help our financial progress. The good thing is that the action steps mentioned have the potential to serve you well regardless of how things turn out with next market movements.

I wish you well on your journey.

This article is meant to be informational only and views are the opinion of the author. This is not meant to be a prediction or advice for your particular circumstances. Consult with an adviser before acting on any of the information contained within this article.

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Lewis B. Walker Jr., is a CERTIFIED FINANCIAL PLANNER ?, professional dedicated to the education encouragement and empowerment of individuals.

He uses the perspective from his journey of going from financial insecurity and five figures in debt to financial stability using hard work and an attitude of one hundred percent responsibility for his circumstances. He believes that money and all that goes with it begins first with the internal game and through commonly used tactics anyone can work towards becoming less financially insecure and find success on their terms. With his twenty plus years of counseling success he knows that money alone does not create true wealth, but with better money comes better lives. He writes about his perspectives on what he believes are the five realms of a truly wealthy life: Physical, Intellectual, Social, Spiritual and Economic.

He is a Financial Consultant with LPL Financial. For more information about Bob or hiring him to speak or assist with finances, send a message through LinkedIn.

The opinions are that of the author and are not indicative of LPL Financial or any other affiliations. Markets are extremely unpredictable and nothing in my post should be construed as advice or a prediction in any form. Securities are offered through LPL Financial, member FINRA/SIPC. The investment products sold through LPL Financial are NOT FDIC insured. These obligations are not obligations, nor endorsed, recommended or guaranteed by any government agency. Insurance products offered through LPL Financial or its licensed affiliates. The value of the investment may fluctuate. The return on the investment is not guaranteed. Loss of principal is possible.                   

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP?, CERTIFIED FINANCIAL PLANNER?, CFP? (with plaque design) and CFP? (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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