Do Nothing about Terrorism?

by David D. Holland

Where were you when the two planes struck the World Trade Center towers? Most people will never forget. The events of September 11th, 2001 profoundly impacted how Americans view the world.

The Threat: With Middle East tensions on the rise, and the threat of terrorism expected to increase, investor anxiety is also growing. May I ask you a question? How does this unrest affect the way you feel about your investments? What would you do with your finances if there was a major terrorist attack in the United States? Don’t be surprised, but your answer should be,“Nothing.” If instead, you thought to yourself, “I’d pull my money out of the market,” then you’d put yourself in an awkward financial position. If everyone tried to “cash in their chips” at the same time, the stock market would plummet. On the first trading day after 9/11, the market fell 7%. By the end of that awful week, the loss had reached 14%.

Do Nothing: How can the answer be, “I’d do nothing with my finances” in the wake of a terrorist attack? The answer is simple: invest “today” as if the terrorist attack will come “tomorrow.” If you can’t stomach a drop in the stock market, and the resulting impact on your portfolio, you shouldn’t be in the market. The percentage of your nest egg invested in the stock market needs to remain invested, even during difficult periods – otherwise, you would be trying to “time” the market. It is extraordinarily difficult (and can be very costly) to try and pick the opportune time to get in and out.

Hope and Plan: While often dismissed as just a cliché, “hope for the best, but plan for the worst” is not a bad financial strategy, nor is “hedge your bets!” You can keep some money in the market, but also put some into less risky investments. Let’s say you are three years from full retirement and have become nervous about your 100% stock portfolio. Consider taking half of your investment money “off the table” and moving it to something less volatile and more conservative. Then, if the stock market fell at the start of your retirement, you’d have the “safer” monies to draw on until the stock market recovered from the losses – without having to liquidate your holdings while they are down in value.

What’s Best and When? The world will remain an uncertain place, with some events that are out of our control. I can unequivocally say, however, that a financial plan built for your goals and your comfort level is a very good idea. And, when should you plan? Yesterday, because “tomorrow” could be today! Wouldn’t you rather be saying, “I’m glad I did,” instead of, “if I had only …”?



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