How to Terror-Proof Your Money
"To drift is to be in hell, to be in heaven is to steer." -GeorgeBernard Shaw
Former Homeland Security Director,Tom Ridge, has said it's not a matter of "if"we'll have another terrorist attack, but when.Like the attack of 9/11, the financial effects ofanother terror attack will be felt by almosteveryone who lives in the United States. If youhave been lulled into a false sense of complacencybecause we haven't been attacked yet, think for amoment about what you could lose if a major attackoccurred in the not too distant future. After September 11th, 2001, major economic shiftsoccurred, and that was a relatively minor event.If a nuclear or dirty bomb went off in New YorkCity, the economic "fall out" would be much, muchgreater. Fortunately, there are simple, effectiveways to "terrorproof" your savings if you knowwhat to do.
After the events of 9/11, I felt aneed to re-think how I allocated my owninvestments. As a Certified Financial Planner andinvestment educator, I also had many students thatwere concerned about protecting their portfolio. Ilooked for books that could be of help, butcouldn't find one that was useful and reasonablypriced. Therefore, I decided to write my own. Withthe help of my co-author Jonathan Robinson, wewrote "Terror-Proof Your Mind and Money: CreatePhysical, Financial and Mental Security inDangerous Times."
In the book, we discuss manypractical ways to easily take the "terror" out ofterrorism by relieving one's anxiety, securingone's home, and protecting one's financial assets.Although I can't discuss all the suggestionsoutlined in our book in a brief article such as this, I canoffer you many helpful guidelines for protectingyour assets in the event of another tragedy. Whenthe time of another attack occurs, if yourinvestments are in the right places, you'llweather the ensuing storm just fine. Yet, if yourassets are badly positioned, you could face theprospect of financial (as well as emotional)devastation.
HOUSE OF CARDS
If you honestly lookat our current economic climate, you can see thereare many vulnerabilities. In the event of a majorterrorist attack in the U.S., our economy couldfall like a "House of Cards." Consider thefollowing:
1. The stock market, especially techstocks like Google, Yahoo and EBay are trading athigher valuations than tech stock prices duringthe dot.com bubble in the late 1990's. Manycommentators are even calling the early 2005market an "echo bubble."
2. The benchmark 10 yearTreasury bond is yielding less than 5% in a worldthat has been promised higher interest rates byFederal Reserve Chairman Alan Greenspan. (Higherinterest rates will cause the value of your longterm bonds to automatically drop in value.)
3. Thehousing market is certainly overpriced on bothcoasts, and is probably unsustainable in themiddle of the country too. Home sales have begunto slow down in light of higher mortgage rates,outlandish prices, too much speculation, and buyerexhaustion. If current homeowners can't borrowmore money out of their ever increasingly valuableresidence, will they keep spending at the mall? Ithas largely been money borrowed out of housingthat has helped consumer buying the last three years...andwithout it, the U.S. could easily fall into arecession--causing even more problems.
4. Thevalue of the dollar-looked at by the rest of theworld as a share of stock in the USA Inc.-has beenfalling for almost three years. Do you think theworld will continue to put $500-600 billiondollars worth of their savings into our economyeach year? If foreigners decide not to send theirmoney to us, our interest rates will rise evenfaster than the promised "gradualism" promised byMr. Greenspan. Most Americans don't really careabout the value of the dollar in world markets,but I assure you if the dollar becomes some sortof "American Peso," we will all quickly learn howa weak dollar can hurt. For example, we have tobuy oil in dollars, and if dollars aren't worthanything, how will we afford to fill the tank ofour nice new SUV?
5. And finally, the rate ofinflation (classically defined as too much of anincrease in the amount of money in circulation),is rising. And if that kind of inflation(monetary) is rising, then price inflation won'tbe far behind. A rerun of price inflation wouldessentially be a rerun of the entirely troublesome1970's.
Yes, there is undoubtedly some good newson the investment front, but overpriced marketsare inherently risky in any kind of era, and theyperform very badly in panicky, terror strickenfinancial markets. An act of terrorism wouldexaggerate problems in all of these markets.
I have been teaching investment workshops since 1979. In 1999 and early2000 I couldn't get my adult students to be worried about ridiculous stock prices. My allegedly savvy adult students all thought, "This time it's different." Well, live and learn. Warren Buffett, the best investor of our era has said, "Investment knowledge is cumulative."Mr. Buffethas seemingly learned that the U.S. stock marketis not a good bet now. He has recently publiclystated that he's not buying anything in the U.S.stock market, but instead is focusing on buyingforeign currencies.
In studying what happened tofinancial markets after the attack of 9/11, Ilearned that investors who had money diversifiedinto various asset allocations did pretty well. Soif history is any lesson, you'll probably do finein the event of a future attack if you invest"relatively" equal percentages of your investmentmoney in the categories of stocks, short termbonds, cash, commercial real estate andcommodities (including gold and silver). Onceyou've moved your money into these different assetclasses, the next thing to focus on is to startpicking specific mutual funds or individualequities that you believe will perform well inturbulent kinds of markets. For example, in anincreasingly dangerous world, certain "security"stocks would likely be good investments (if othervalue considerations are present.) Such classicdefense stocks as Boeing and Lockeed have donewell since 9/11. Of course, I'm not your financialadvisor and this is not the forum to be toutingany particular companies, so I'm not recommendinganything without knowing more about you. Rather,my goal here is to get you to look at allocationof assets - the big areas your assets are investedin.
Besides detailing how certain industriesdid after 9/11, I devote significant attention inour book to encouraging investors to includeprecious metals in their portfolios. Gold andsilver have protected investors for centuries fromfinancial mismanagement, bad governments,inflation, and of course, war. It's not anaccident that the Golden Rule is frequentlymisquoted as "Those with the gold rule." It isalso worth remembering that all "fiat" currencies(paper declared to be money by some authoritywithout it being exchangeable into anything else)have eventually become "collectibles." Confederatemoney, French assignats, Iraqui dinars, etc. haveall become confetti. Compare that track record tothe fact that every single gold or silver coinever made still has value. You should think aboutplacing some percentage of your money in gold andsilver if you are looking to make your portfolioterror-proof.
Your preparation doesn't have to beperfect. As George Patton said, "A good plan todayis better than a perfect plan tomorrow." Nobody isborn knowing how to invest. Smart investorsdevelop their expertise by reading about whatothers did with their money, and coming up with asuitable plan based on all the information theycan collect. Remember, traditional Wall Streetbrokers and TV financial analysts rarely (if ever)bring up the subject of terror-proofing yoursavings. Therefore, other than the book Ico-authored on this subject, you're pretty much onyour own when considering the likely implicationsof a terror attack on your financial health. Makeyour decisions carefully.
For most people, theworst scars from a future terrorist attack won'tbe physical. They will be emotional and financial.If you are caught flat-footed, your futurefinancial plans (and those of your loved ones)could be delayed for a significant period of time, or destroyedaltogether. That would be adding one tragedy ontop of another. It's time to pay attention to yourwhere your money is and take appropriateaction?before it's too late.
Michael McGowan is an attorney and a certified financial planner who conducts investment workshops for attorneys and CPAs around the country. He is a former stock broker and financial columnist for the American Bar Association Journal. His new book, "Terror-Proof Your Mind and Money", isavailable from http://www.amazon.com.
His websites are http://www.terrorproof.net, http://www.goodinvestmentdecisions.com, and his blog with sound financial information is at http://www.goldfinger.blogs.com. Mike can be reached via email at firstname.lastname@example.org.
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