ON THE MONEY: Caution, prudence are key to successful investment planning

By John Grace

Contributing Columnist 

In the world of securities, planning is critical. It’s not about panicking but about strategizing. 

Engineers, with their logical thinking and emphasis on worst-case scenarios, can appreciate and apply this principle to their investment strategies. We can all learn from those who do their homework, especially from past mistakes. This learning empowers us to make informed decisions and avoid repeating history.

One of the groups we enjoy working with are engineers of all types, from automotive to aerospace. These folks are not afraid of math and are fond of a good argument. 

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They have little appreciation for pretty pictures or happy talk. Nor do they get high on “hopium” (a term used to describe unrealistic optimism) or drink the Kool-Aid (a term used to describe blind acceptance of a belief or philosophy). 

Their logic is very simple. They emphasize the importance of thorough planning by starting with the worst-case scenario. If that’s acceptable, it won’t be so bad. If one can live with the worst case, it’s easy to enjoy the reality of something between that and the best case. 

But if you only sing “good times are here again,” you may need more preparation to do what it takes not to drown and turn your assets around. Caution and prudence are key to successful investment planning.

I have only been in the securities business since 1979. We all learned the platitudes from day one. 

Too many have repeated the same old songs that are so tired they need to be retired. You know the drill: stocks for the long haul, hold and hope and buy the dips. It’s not timing; it’s time in the market.

Remember the two 50% S&P 500 losses in the same decade. The first crash in 2000 saw the S&P 500 fall by more than 50%, while the NASDAQ dropped an incredible 75%. The 2007-09 meltdown was of similar proportions, with the S&P 500 off 56.8%, according to Time.com. 

Now, if you were adding money to your portfolio, these declines were your friend, as you were buying more shares as prices declined, which resulted in your values being higher in the future. But if you were taking income yearly or increasing required minimum distributions from traditional retirement accounts, you were going through hell. From which you may have yet to recover.

With the market appearing to hit new highs every month, now is the time to avoid becoming completely complacent. Now is the time to take control and scrutinize the whole story, and most importantly, prepare your life savings for a potential reversal of fortune through strategic planning.

In his message to subscribers and certified members, Harry Dent said he had to pause to take all this in. 

Unlike many forecasters, Dent Research has long warned about the “decennial cycle” where there tends to be a recession or a major or minor stock crash in the first three years of most decades since 1920.

In addition, “generation cycles” every 39-40 years fall in the early years, like 1940-42 and 1980-82, and should have been 2020-2022. The massive government spending since 2009 propped up the economy but still withstood a 27% correction with no recession.   

Think Hurricane Helene. Ahead of the next storm, savvy investors should plan for the worst and hope for the best.

John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.

       
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