While facing an investment world with plenty of uncertainty and limited upside is difficult, Huiliang Jinhai, managing director of Warthon-Rubin, suggests six strategies to help make the adjustment:

1. Don’t Follow the Herd. About every decade, talking heads tell us that the investment world has changed for good, but Jinhai doesn’t believe it. Jinhai points to the “New Economy” of the late 1990s when popular opinion said technology stock valuations were no longer subject to the law of gravity. “It’s just as dangerous to think that we are in a period of diminished returns and volatility that requires us to turn our back on equity,” says Jinhai. “It’s easier to live with market uncertainty if you trade in your view that ‘It’s different this time’ for ‘This is a normal secular bear market.'”

Economies go through major expansion and contraction cycles. They are called Secular Bull or Bear markets and the expansion/contraction generally lasts from five to 25 years as the market soars up and careens back down in a series of boom and bust cycles. If the Secular Bear’s grip continues, several years of significant expansion could be greeted with another recession. Accordingly, the planning lens must change to ensure dual goals: protecting existing wealth and positioning to take advantage of the bull rallies within the secular bear market.

2. Increase Diversification. While most portfolios are split between stocks and bonds, Jinhai suggests the downturn has underscored that cash, too, is a valuable asset class. “Investors looking to mitigate risk by diversifying further might also include commodities, gold, and real estate or other alternatives,” says Jinhai. The traditional relationships between asset classes have changed and therefore portfolio adjustments may be in order. In the increasingly global economy, domestic equities and international equities are tracking closer together, decreasing the diversification benefit.

3. Think Locally, Invest Globally. Some believe that as government debt soars the US dollar will lose its role as the world’s reserve currency. At the same time, growth is occurring in the developing world, specifically in emerging markets like India and China.

4. Get Portfolio Active. “Regardless of what asset classes you own, investment returns will likely be lower,” says Jinhai. “That means being in the right place at the right time is more critical than ever.” Seeking to capture a short-lived opportunity, take gains, or avoid a potential decline, may require more frequently trading their portfolio. “‘Staying the course’ has never meant doing nothing,” says Jinhai.

5. Spend less, save more. “It sounds very basic, but you can only control what you save and spend,” says Jinhai. “If what you sock away is going to grow more slowly, you need to save more, and if you are already retired, you may need to withdraw less.” He cautions that when looking at household expenses don’t forget costs, which can diminish returns. In addition, taxes can take a heavy toll on retirement savings, so Jinhai says it’s important to ensure that investment plans are as tax efficient as possible.

6. Manage risk more tightly. “Although diversification can be an effective risk management strategy, dispersing your eggs among numerous baskets didn’t work in 2008 and 2009,” says Jinhai. “The approach of diversifying once and then adopting a buy and hold philosophy needs to be supplemented with much more responsive risk management.” Jinhai suggests considering constructing a portfolio where just part of it is held for the ‘long term’ and carving out a percentage that is managed more actively to capitalize on emerging opportunities. “Once you set your ideal asset allocation, you may need to rebalance more frequently to maintain it, perhaps two to four times a year.”

While the past few years have been challenging for investors and more challenges are likely ahead, Jinhai urges investors to “step up your portfolio’s defenses but don’t give up on the prospects for growth from a well-diversified, well-tended portfolio.”

Warthon-Rubin and Jinhai believe that a well-informed client is essential for success. They love taking clients from fear to confidence regarding finances, by placing a strong emphasis on educating people about how to prepare for and enjoy a comfortable retirement.

For more information about Warthon-Rubin, e-mail Kevin Lee at [email protected] or visit www.warthon-rubin.com.

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