MONEY: Finance educator Bradley Zucker analyzes a tumultuous start to 2014
– The first two months of 2014 have been a rollercoaster for the markets. After a phenomenal year in 2013, January’s negative performance came as a surprise to many. In January the S&P was down 3.5 percent for the month, and the Dow was down more than 5 percent, making it the Dow’s worst January since 2009. Then February showed a reversal of course – on February 24th, the S&P hit a new record high during intra-day trading and all but made up for January’s losses.
At least a portion of the market’s New Year volatility was a result of the Federal Reserve. On January 29th, the Fed announced that it would be tapering its economic stimulus program by another $10 billion per month, down to $65 billion a month starting in February. The markets had an adverse reaction to the news, dropping more than 1 percent the same day the Fed made the announcement.
New Fed chairman Janet Yellen has suggested that further tapering could be in our future, and it’s impossible to predict how markets will react. The good news about tapering is that it means the Federal Reserve believes the economy is growing, and needs less and less stimulus to be healthy.
It only takes one sudden drop to severely damage a lifetime of savings, and it can often happen without warning.
Additionally, by not injecting billions of dollars into the economy each month, the dollar should become stronger (reducing the risk of inflation), which is important for the stability of the economy and financial system. On the other hand, without as much market-friendly stimulus going into the economy, the markets could be negatively impacted.
Of course, if you are watching your portfolio rise and fall, you probably care less about why it’s happening and more about how you can protect your portfolio and your financial future from the negative effects of market volatility. After all, it only takes one sudden drop to severely damage a lifetime of savings, and it can often happen without warning – investors were confident in May of 2008 when the market closed at a record high, but that was just five months before it collapsed in October.
It’s very important for investors to be invested according to their timeline to retirement. Those who have decades until retirement have time to make up larger losses, but if you’re retiring soon, time isn’t on your side if you needed portfolio recovery. Conservative investors and the soon-to-retire should consider diversifying in financial instruments not directly tied to market performance.
Investments linked to interest may begin to become more attractive as tapering continues, because interest rates could increase. If this were to happen, fixed income investments such as bonds, bank products and insurance products may provide better choices for investors who want to avoid the market turmoil.
Market volatility is a natural part of investing, but the risk isn’t right for everyone. As the last few weeks of ups and downs indicate, we can’t predict how markets will fair in the next month or the next year. What we can do is prepare and be smart about how we position our savings and investments to protect our financial future. | iH magazine
Bradley Zucker, financial educator, president, and chief financial advisor of Safe Money Advisors, Inc. a Henderson-based independent financial advisory firm, specializes in comprehensive financial and retirement planning including conservation of capital, preservation of principal, tax-advantageous distribution of a life saving and competitive asset growth with little or no downside risk. Mr. Zucker is a Registered Financial Consultant (RFC®), an Investment Advisor Representative, licensed life and health insurance professional, and has more than 25 years of experience in the financial industry. Mr. Zucker works with pre-retired and retired individuals 55 years of age and older, helping them optimize their wealth for their retirement and structure a reliable income to last the duration of their golden years. He is a member of the Ed Slott Elite IRA Advisor Group™, International Association of Registered Financial Consultants (IARFC), National Ethics Association (ethicsheck.com) and the Better Business Bureau. For more information about Mr. Zucker and Safe Money Advisors, Inc., please visit www.SafeMoneyAdvisorsNV.com.