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Guarding Your Wealth for Senior Citizens
What To Do When A Good Investment Goes Bad
My mother-in-law knows not every seed planted will
result in a harvest
By Jeffrey D. Voudrie, CFP
 Oct.
16, 2007 - We always hope for the best when we enter into an investment,
but what happens when things don’t work out as planned? Follow this
simple advice to make the most out of a bad situation.
My mother-in-law is an avid gardener. She really
enjoys springtime—tilling the soil, preparing the rows and planting
seeds. It’s easy for her to imagine a lush garden bursting with produce.
But not every seed planted will result in a harvest.
If a surprise late frost destroys her potatoes, she
doesn’t waste time fertilizing, weeding and watering the blackened
plants. She cuts her losses and replants with something else. It’s the
same way with investing. Not every investment is going to bear fruit.
Some will lose money. Others may not earn as much as they should.
You must have a strategy in place to invest
successfully. That includes a strategy for when investments don’t
perform as well as you’d hoped. As the old country song says, “You’ve
got to know when to hold ‘em, know when to fold ‘em, know when to walk
away, and know when to run.” Of course, investing isn’t a poker game of
chance, but it does require diligence and action.
So what do you do if your investments decline? The
result of a decline can be because of macro factors or micro factors.
Knowing which affected your investment will guide you in determining the
best course of action.
Macro factors are events based on large,
all-encompassing events such as an economic recession, a bear market, or
reactions to acts of war or terrorism. A stock declining in value as the
result of an overall market drop would be a ‘macro’ factor. A bond
mutual fund losing value because interest rates go up is another example
of a ‘macro’ factor.
Micro factors are smaller events where the effects
are narrow in scope. Changes in the management of a mutual fund, pending
lawsuits or regulatory investigations of a company whose stock you own
are three examples. Or maybe the company’s products aren’t as
competitive as they used to be or they’ve been found guilty of
accounting fraud.
When an investment is being affected by macro
events, it may be best to sell all or a part of the investment and keep
the money safe until the situation changes and the risk is reduced. War
or an economic recession is a good example. If you are uncomfortable
with further potential loss then it is better to move to cash and ‘keep
your powder dry’.
But if micro factors were the main cause of a
decline in value then it may be better to sell that investment and put
the money into a different company or different sector of the market.
For instance, if Microsoft had a bad earnings report released and it
looks like their planned product releases aren’t being well received,
you might want to find another stock that is performing better.
Lastly, don’t emotionally beat yourself up if one
of your investments fails to perform as you expected. You can’t control
the market but you can control how your respond to the market. Don’t
ignore the investment or deny its lack of performance.
Take action
yourself or seek competent professional advice from someone who has your
best interests at heart.
My clients expect me to keep a close eye on their
investments and to take action when necessary. And we have proprietary
systems in place to help us do that. What strategies does your advisor
employ? Do they have a logical and prudent plan of action, or are you
told to “hang in there, it will come back,” while they do nothing to
stop the bleeding in your account?
That strategy might work during a bull market but
not during a bear market. Besides, it will do nothing to protect you
from micro events that affected the likes of Enron and World Com.
Make
sure you or your advisor are diligently protecting your wealth. Actively
monitor each investment and keep an eye on both the big and the little
picture. And take action when an investment goes bad.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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