Remembering 9/11

This week marked the 5-year anniversary of the terrorist attacks of September 11th, 2001. It is a tragic day that none can forget. And it is a day that should continue to affect our investment decisions. Read on to find out how. Unfortunately, terrorism is here to stay. Both at home and abroad, militant Muslim terrorists will continue to seek the destruction of democracy and the free world. While our government is striving to protect our national interests from attack, it’s our responsibility to do what we can to protect our investment portfolios from the effects of terrorism. We mustn’t become complacent when factoring the risks associated with terrorism into our investment decisions. The fact that there hasn’t been a successful attack on our shores in the last five years doesn’t mean the threat to our investment portfolios is over. Proper investment choice is essential in protecting your nest egg. But beware. There are many products being pitched to investors that are designed to create a sense of security…but it’s a false sense of security. Using them may not protect you as you think. For instance, products like equity-indexed annuities are supposed to protect you from risk. But what if a terrorist attack affects the economy or your personal situation such that you need access to your money? You won’t be able to get at it without needlessly losing a big chunk of money to surrender penalties. There are riders available for variable annuities that are sold as guaranteeing you will earn a 6% or 7% return regardless of what happens to the value of the underlying funds. But that’s not really how they work. There isn’t an insurance company on this planet that can guarantee a return of 7% on your money in a variable annuity. Invariably, the 7% promised will include the return of your principal, not return on your principal. Moreover, you have to convert the annuity to a stream of payments over your lifetime in order to receive this benefit. That doesn’t help you if you need your money. Mutual funds carry their own added risk as well, since they can only be bought and sold at the end-of-day price. If a terrorist attack occurs in the morning and the markets drop throughout the day, you can’t move your money to safety until the end-of-day. And the markets may be shut down by then. It is vital that you maintain your ability to access and quickly sell your investments if you need to. There are countless investment options that provide this flexibility so it’s senseless to give it up. Terrorism risk should also affect the strategy used to manage your investments. The vast majority of advisors and investors adhere to a buy and hold strategy. Its proponents say that, over time, the markets will recover if you hang on. The question is how many years will it take to recover? Those who followed this advice in 2000 and 2001 still haven’t recovered their losses. Retirees and near-retirees can’t afford that risk. Don’t let anyone keep you from protecting your hard-earned money. Obviously, there are some industries that haven’t fared well in today’s terrorist environment, and would suffer should another domestic attack occur. Airlines and tourist-related companies would likely see the value of their stocks decline significantly. There are ways to profit from terrorism risk, but you must do so wisely. For instance, energy prices will continue to be affected due to potential supply disruptions. Owning select energy-related stocks will allow you to profit from this. Instead of choosing large, international companies, I suggest selecting those that operate locally or regionally. That way you get the benefit of rising energy prices without the risk of an attack affecting the company’s assets. Canadian energy-related trusts are one example. There are many other industries that can provide a good return while reducing your terrorism exposure. For instance, I utilize rural telephone carriers, apartment management companies, companies that make and sell ice and ones that operate coin laundries. They all pay very healthy dividends and should be little affected should the unthinkable happen. Don’t live in fear, but be wise and diligent. By carefully choosing your investment products, management strategy and industries you invest in, you will help insulate your portfolio. I’ll personally respond to your questions, free of charge. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.