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Jim Lentini: Bad economy means a return to basics

Posted: February 10, 2009 1:13 a.m.
Updated: February 10, 2009 4:55 a.m.

Jim Lentini

 
These days, with the markets experiencing such wide swings on a daily basis, it is hard feeling the strain and the urge to panic.

The old saying, "slow and steady wins the race," may be the best advice you can give yourself in these unstable times.

In the face of a volatile economy, it is more important than ever to think like a long-term investor. That means take a deep breath, consult with your financial advisor (or get one), reconfirm your savings strategy for your retirement portfolio, and focus on your long-term savings plan and goals.

Markets are cyclical, and however painful it may be, it is normal to experience bull and bear markets, even a recession or two during our earning years until our retirement. It is especially painful in the "red zone," during retirement or five years before.

According to the Bureau of Economic Analysis, there have been 10 recessions in the U.S. since 1945. The best way to counter the daily media barrage and negativity is by revisiting a few investing basics that help formulate a strategy that is based on reason rather than emotion.

* Risk vs. reward: The higher an investment's potential return, the more risk it carries. Stocks carry more risk than bonds or cash, but over time, stocks have also tended to outperform them, especially in terms of outpacing inflation.

* Focus on destination: There is no perfect time to buy or sell. Many investors are moving into money market and CD accounts after big losses to their portfolio. They may miss the recovery surge when it occurs.

* Dollar cost averaging: When prices are lower and you are making regular contributions to a retirement savings plan, you can benefit by buying more shares at a lower price.

* Asset allocation: A turbulent financial market is the best argument for diversification. Ensure your strategy matches your investment time horizon and you are diversified among various asset classes. The lifestyle portfolios are a great help.

As noted in previous articles and a philosophy I preach, it is important to have some portion of your retirement portfolio in variable annuities. A variable annuity offers guarantees to a retirement plan not offered by other retirement investment vehicles.

Be sure to consult with your advisor about annuities, their merits, costs, differences and if they will meet your retirement goals.

Jim Lentini, CLU, ChFC, IAR is President of Lentini Insurance & Investments, Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.

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