According to the Bureau of Labor Statistics, the cost of gasoline has increased by 26% in the last year and oil increases show no sign of slowing down. Similarly, the bureau notes that grain and dairy-based products have increased by double digits in the last year. And, we are all aware of the weakening dollar and its effect on the cost of goods coupled with less available credit. Further, as noted on the Bloomberg newswire, Fannie Mae forecasts a drop of 7% to 8% in home prices nationally in 2008. None of this is good news. In short, all our members are feeling the pain of this seemingly perfect storm of economic poor tidings.
So, are we in a bull market or bear market? The question appears moot, even a foregone conclusion. Further, that answer depends upon which expert you talk to. More importantly, however, does it really matter? That answer depends upon whether you or your members are in the right asset allocation. And, what is the right asset allocation? The answer depends. So, what is certain? One thing for certain, in up or down cycles, individualized advice for each of your members needs is king.
In bull or bear markets, members need solutions to their concerns and pathways to their goals. And in times when many if not all investors feel insecure about their financial future, good advice is akin to a hot meal on a cold day–essential.
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To be clear, the definition of success depends upon the needs and goals of the members. Thus, rule No. 1 for a stable financial picture is to consult a qualified investment adviser about your individualized needs and goals to create a long-term strategy. When evaluating an investment adviser, experience and process are important. An adviser that has been through a few bear markets often has the ability to remain calm and stay focused on long-term objectives.
Further, how can you rest assured that advisers has your members' best interests at heart? Evaluate their investment process. Where the process focuses on designing allocations to fit individual needs as opposed to a focus on hitting home runs by using an individual stock, mutual fund or other investment product, members will benefit. Credentials are another good sign of qualification. A firm that emphasizes knowledge as reflected by its representatives' designations, e.g., CFP, CFA, CTA, is a good indicator that members will get learned advice based on the principles of member-centric investing. Ultimately, working with an adviser to create an asset allocation with high-quality securities that meets members' needs and goals and addresses their tolerance for risk, will result in an all weather portfolio that works come rain or shine.
Once you consult with a qualified investment adviser about your needs and establish an asset allocation, stay the course with adjustments as your circumstances dictate. Key to financial success is to understand what works for each of us as opposed to what works according to the pundits. In brief, short term moves to match the news of the day are a recipe for long-term disappointment.
When markets go sour investors are prone to err on the side of panic. This immediate release of emotional steam affords temporary reprieve only to be followed shortly by the haunting possibility of the consequences of our actions. Certainly, in markets like this one, these emotions abound. But, members should beware. Panic-induced actions often lead to short term results and long-term loss. Selling low and then buying high as the market rises is a recipe for deflated returns in a time of rising inflation.
To quote famed investor Warren Buffet, "Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."
It is important to know who is doing business with your member and to pick a company your members can trust. In determining whether an adviser is right for members, it is important the adviser is relationship oriented. Members, especially in trying times, require knowledgeable investment people who will guide them through the morass of market data and chatter. The blah, blah, blah and rah, rah, rah of varying market voices is short of schizophrenic and can freeze members to inaction, and inaction in the market place is tantamount to retrograde motion. Consulting with a process-oriented adviser is an education for members and a salve to their financial wounds because their plan is built around their needs and goals and not a product. Further, ensure that members' investment returns are not reduced by costly embedded transactional fees couched in member statements. Addressing these two items broadly addresses the needs of members and further reminds them why the credit union way is the right way.
In summation, direct members to consult with a knowledgeable investment adviser about their specific needs and goals. Advise members to stay the course and stay in contact with their advisers to make changes to their long-term strategy as needed. Reassure members to fight the panic impulse leading to further investment confusion and to seek the counsel of their adviser. A basic investment principle that has stood the test of time is buy low and sell high. Remind members not to let their emotions result in selling low and then buying high, hoping to sell higher. The major market forces that determine much of members' investment outcome are fear and greed. Finally, protect your members by associating them with advisers that are client oriented. In rough waters, sharks often abound and, as financial institutions, we serve as lifeboats for our members. Let us represent the time-honored principle to not only serve but serve well by taking care of our members.
Neil Archibald is corporate counsel and chief compliance officer at MEMBERS Trust Company. He can be reached at 888-727-9191 ext. 707 or [email protected].
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