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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. Read more
articles about finances
or investing, or
ask Jeff
financial question. |
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