Winnipeg Free Press - PRINT EDITION

Washington's financial drama reason to assess your position

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For those who are addicted to U.S. news networks and TV shows, it's a stressful time.

My personal theory is one of the worst things you can do for your health is follow these shows on CNN, Fox and CNBC. I've visited relatives who have this stuff on all day. For the first hour or so, I feel very informed, but after a day or two I go berserk. Literally.

When times are good and there are no big issues to worry about, these networks create them and provide a steady stream of "experts" who contradict each other, leaving the viewer not knowing whether to buy or sell in that particular minute or day, which is the time period in which they trade.

The only good news about that is the majority of investors end up doing nothing -- usually their best strategy.

If this farce had been a novel or a play, it would be dismissed as too far-fetched to believe

However, this week, the networks have a genuinely serious issue to cover, the partial shutdown of the U.S. government and the remote possibility U.S. lawmakers will decide to default on the government's financial obligations.

If this farce had been a novel or play, it would be dismissed as too far-fetched to believe. Unfortunately, it is being acted out in real life before our eyes. I mean really, guys, are you actually going to wreak havoc with the U.S. government's credit rating and the entire economy just to make the point you are tougher than your political opponent?

The Republicans seem to be playing the game of kick the ball into the forest if you're losing on the scoreboard. But rather than talk politics and risk falling into partisanship or giving any politician credit, let's look at what you can do for your investment portfolio to weather this potential crisis.

First, if you have followed our advice over the years and you have an appropriate mix of equities, bonds, guaranteed investments and short-term instruments to match your time horizon, risk tolerance, liquidity and income needs, you are likely best to doing nothing.

Focus on the long term, and be comforted with the fact a significant portion of your portfolio (the bonds and other fixed-income instruments) may, in fact, rise if the worst scenario plays out. (They may not rise immediately, given there will be widespread panic, but should recover and rise shortly thereafter.)

If the politicians push this to the brink or beyond, stocks will definitely be pressed down, likely below their real value. For a properly diversified investor, this may represent a good buying opportunity. However, you would only purchase more stocks if the market volatility resulted in your portfolio becoming overweighted in fixed income and cash and underweighted in equities.

Further, I am in no way commenting on the best timing of this, which will be between you and your investment adviser. What I'm saying is what I've said before in the 19.9 years I've been writing this column, that the time to buy good-quality businesses is when the stock price is on sale.

In the much more likely scenario in which the politicians solve things in the 11th hour, you can carry on with business as usual.

If, on the other hand, you do not have a properly diversified portfolio and have all your money in equities, now might be a time to reassess your time horizon and risk tolerance... quickly.

If all your money is in bonds, GICs and cash, this crisis won't affect your values, but you may run the risk of running out of money before you are finished with it. Consider better diversification.

As always, we will hope for the best while preparing for the worst. That has worked well for us for a long time.

Take this long weekend to count your many blessings. Happy Thanksgiving!

 

David Christianson, BA, CFP, R.F.P., TEP, is a financial planner and adviser with Christianson Wealth Advisors, a vice-president with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance

Republished from the Winnipeg Free Press print edition October 11, 2013 B15

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