Going Green, Part 2

As the summer heats up, so does the rhetoric about the energy crisis. The presidential candidates are taking political shots at each other’s solutions to the problems, while everyone else in Washington is playing the blame game. Even OPEC is washing their hands of the matter, blaming ‘speculators’ for the current crisis.

As investors, all the arguments and finger pointing do nothing to help our bottom line. If we wait for our own government or powers abroad to take action to benefit us, I’m afraid we’ll be waiting a very long time.

But the good news is that you aren’t at the mercy of feuding politicians or oil-producing nations. There are steps you can take to protect your nest egg and your standard of living.

One important factor to understand so that you can navigate these turbulent times is that the issue isn’t just the price of oil. The supply/demand problem we discussed last week is occurring across the board with all natural resources. Just as China and India are increasing their demand for oil, they’re also increasing the demand for food products, such as soy beans, corn, and wheat.

As supplies tighten and demand increases, we’re seeing a world-wide increase in food costs. Ethanol production and drought conditions in some wheat-growing areas like Australia are only adding to the problem. The recent floods in the Midwest have also destroyed many acres of grain crops. All of this means that consumers shouldn’t expect to see relief at the checkout any time soon.

Since consumers world wide have to spend more of their money on food, we see two obvious results. First, they are less optimistic about their financial situation, and second, because food and fuel is consuming a larger percentage of their disposable income, they are cutting back their spending in other areas. We’ve already seen this here in the United States, where one large home improvement chain recently reported a decrease in big ticket purchases and a sharp increase in repair items.

When consumers are feeling the pinch, it’s usually a hard time for the stock market. The temptation might be to pull out of equities all together and head for the ‘safety’ of cash, bonds or CDs, but these investments have their own set of risks. Interest rates are quite low and these investments give you no protection from inflation.

Real estate often performs well in an inflationary environment, but we are still feeling the effects of the real estate bubble and sub-prime mess. Savvy investors can take advantage of the situation, but if you don’t know what you’re doing, you can certainly get burned.

In these uncertain times, investors can make an even more costly mistake: believing the hype about ‘miracle’ investments that promise to solve all your problems. These products are promoted as ways to protect your money and give you a bonus for investing, but instead they lock up your money for years, give below-average returns, and provide a handsome payday for the advisor.

If ever there was a time to keep control, access and flexibility over your money, it’s now. In these difficult markets, you must be able to take quick action to protect your money and have the flexibility to take advantage of changing opportunities.

The good news for investors is that you can be in control of your financial future. You don’t just have to sit back and take what the markets give you. Yes, you will need to tread cautiously and be highly selective in the sectors and countries in which you choose to invest. But you don’t have to be at the mercy of pre-packaged, mass-marketed products that do little to help you meet your financial goals.

There are times you might need to ‘stand aside’ and let the markets work through an issue. Remember, all the money managers are seeing the same trends and what used to take several days to play out is now happening in a single day. This is increasing volatility.

Don’t let the current energy crisis turn into a financial one for you. Maintain control, access and flexibility over your money and keep a close eye on your investments. This isn’t the time to simply buy an investment and hope it does OK over the long-term. Instead, opportunities and risks must be closely managed—something few advisors do.

In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide. For more information go to www.guardingyourwealth.com.