Let’s face it, if you’re looking for bad news and reasons to feel pessimistic about the future, you needn’t look any further than your favorite 24/7 news channel, or online news site. But as the old saying goes all bad things (and all good things) must come to an end. We lose love ones, grieve for awhile, and eventually move on with our life and enjoy those close to us who are still alive while being happy that the deceased ones came into our life. Life for most of us is filled with ups and downs. The maxims that we all end up smashing into in some aspect of our life are ones that go like this: Those to who fail to learn from history are doomed to repeat it. My favorite is, insanity is defined as doing the same thing over and over again yet expecting different results.

As depressing as it is to look at the latest statement from your 401k, mutual fund or brokerage account statement, the time will come again where it seems that everyday is an up day for the market, your hairstylist is telling you about the latest can’t miss stock, and picking winning investments is no more difficult than hanging the stock page on your dartboard and investing in the ones where your darts hit. Happy days will be here again. It happened after 1974, 1987, 1990, and 2001 and it will happen with the great bear market of 2007-2009. Consider this article to be your wakeup call before the next euphoria strikes, and go in with a strategy so you don’t get up caught up in the tidal wave of good times which crashes ashore, as all waves eventually do.

CASH IS KING IN BAD TIMES

The personal savings rate for Americans is at an all time low, while debt is at an all time high. Let’s face it, if you have cash, now is a great time to purchase a car or home. In fact, according to Thomas Stanley’s Millionaire Mind, many of the truly wealthy picked up their current home following a financial meltdown ( my guess is it was the one following the 1990 S&L Crisis) and a few astute people will make out from this crisis as well. Unfortunately, many others can forget buying a new car or home, they don’t have enough to pay the electric and gas bill  for the next month if they lost their job tomorrow. For the past few years it didn’t matter though, because all one had to do if they needed cash for whatever their heart desired was call their friendly neighborhood mortgage broker and cash was soon on the way. All that needed to be done was filling out a form or two. But as I mentioned above, the good times came to an end. Now the suggestion of 3-6 months living expenses (12 months if you’re self employed like myself) seems like a pretty darned good idea. If you haven’t implemented this step into your financial strategy, do so A.S.A.P.

IS YOUR MUTUAL FUND MANAGER THAT IS SUPPOSED TO OUTPERFORM THE MARKET DOING SO?

While the financial meltdown caught everyone by surprise and not even the bond people got their hide saved, did the guy (or gal) that is managing the money in your mutual fund perform better than his/her benchmark index? If not, why do you continue to hire him/her? To be sure, in an efficient market like the S&P 500, it’s very hard to outperform the market indexes over the long term. Market performance can be had by buying an index mutual fund or one of the newer Exchange Traded Funds (ETFs). Now some markets that are inefficient (emerging markets, oil and gas, managed futures come to mind) can benefit greatly from an astute money manager that happens to know that market, and the extra fees might be worth it, but for an investment in an efficient market like a growth stock mutual fund, the extra expenses might be throwing good money after bad, and this leads me to……….

EXPENSES, EXPENSES, EXPENSES

In good times, no one notices an investment has high expenses. As long as the manager is getting good returns, no one notices that he/she is getting 11% when the respective index is getting 14%. But in bad times, high expenses are like handing an anvil, instead of a life raft, to a drowning man. Do you know how much your investments are charging you in expenses? Sure the information is in the prospectus but now many people actually read through their prospectus as opposed to laying it down at the bottom of their pet canary’s cage. Now would be a good time to review your investments for expenses by yourself, or with an Registered Investment Advisor that has a fiduciary responsibility to always act in your best interest. In most cases, you can get the same performance with less expenses by investing in an index fund or an ETF.

If you suspect your 401k plan is charging excessive hidden fees, and many are, get together with your co-workers and go in to speak with your HR person, or on site plan administrator about your concerns. The U.S. Dept. of Labor, with the passage of the 2006 Pension Protection Act, is on the lookout for plans with excessive fees and will be cracking down on plans that have them. If your plan is one of them, you and your co-workers encouraging an investigation into fees could not only save alot of money from being needlessly spent, it could save your employer countless amounts of money in litigation and fines if the Dept. of Labor finds the expensive plan before your employer does.

DIVERSIFICATION, ASSET ALLOCATION, WHATEVER YOU WANNA CALL IT  ‘JUST DO IT!”

It’s been said that if you’re not the lead dog the view is always the same, that is, your nose is always up another’s rear end. But mark my words, whenever the bull market comes back, many will be right back to trying to pick the next winner, regardless of the fact that strategy doesn’t work and never will work except by pure luck, and the “lucky” ones often miss on their next guess. Having strategic amounts of money placed in asset classes that don’t necessarily move up or down at the same time, is still the winning strategy over time. The trouble is, many people don’t understand the concept of investment classes that are non-correlated (i.e. don’t move together.)  I can’t tell you how many times I’ll get a 401k plan or personal investment portfolio to review and the person swears they’re diversified, then I enter their portfolio in to my Morningstar Principia software and we find out how badly they are NOT diversified, but instead the funds they chose hold almost all of the same things. To be fair, asset allocation/diversification didn’t do so well in this latest meltdown because the downturn was caused by a crisis of confidence moreso than a business cycle coming to an end which happened in 2000-2002. 9/11 only poured fuel on the fire. Examine your porfolio yourself, or with an objective advsio,r and make sure that you are truly diversified.

INSURE YOURS AND YOUR FAMILIES FUTURE

While I can’t think of anyone who likes insurance, its very necessary, especially in rough economic waters. Were you one of those people who put off buying life insurance to ensure that your family can survive in the event of your untimely demise because your stock portfolio was doing so well? Well I’m glad that you’re still alive and kickin’ but what would have happened if your life ended during this market downturn? I don’t think your creditors are going to wait until the market comes back until they start sending bills again to your wife and kids.

When was the last time your home and auto insurance was reviewed with your agent? Did anything change since you originally purchased the policy such as an old car that needlessly continues carry to comprehensive and collision coverage even though the lower value of the car makes continuing to carry these coverages to be senseless. Also, with as many companies in the auto insurance game nowadays you’d be a fool to not shop it every few years. If you’re with an exclusive agent , call another exclusive agent or call an independent agent, get some “different looks” the worse that could happen is that you invested a little time and found out you’re well off where you are. The best that could happen is that you could be paying less for what you’ve already got. That being said make sure you’re comparing apples to apples, if you’re currently with a good company that charges decent rates and pays their claims on time don’t switch to “Cheapie Insurance Company” whose rates are low, but they want to sell you state minimum coverages(NEVER a good idea), or they tend to disappear or fight you at claim time.

Auto and home insurance rates are raised or lowered in “bands” or “classes,” if your band has an extraordinarily high loss ratio, your rates will be raised, regardless of anything you did or didn’t do. If your band had a lower loss ratio then your rates will be lowered. The thing is, the rates for different bands vary between the companies every year. For example, last year males in the 35-40 year age band (mine) must have increased with the company I was with because my premium is higher this year and I was accident and moving violation free. A client of mine, who is with the same company, had a son who had an “at fault accident” last year and his rate for auto insurance actually went down. While being a “serial changer” is not necessarily in your best interests, and you may be friends with your home and auto agent, surveying the scene and seeing what else is out there every 3 years or so is a pretty smart idea in my opinion.

The final category in insurance, health and disability insurance is also one that should be reviewed on a regular basis. If you’re an employee you typically don’t have too much choice on what your health insurance options are, whatever your employer has is what you use. If you buy your own health insurance, are relatively healthy (i.e. don’t go to the doctor much), and are not in the process of starting a family, consider a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). You pay less in premiums for what you don’t use, therefore keeping more for yourself. Also, if you’re self employed you can write your HSA contribution off on your taxes.

For disability insurance, even if you get it through your employer, see how much you’re going to actually get if you get disabled. Many plans pay you 2/3 of your salary and that amount is taxed, so take about 20% of that amount. Now, can you and your spouse/significant other live on that for an extended period of time? How long will the benefits be paid? I have a client that is in a union who has coverage for Short Term Disability (STD) but if his disability stretches beyond six months he and his family are on their own thereafter. If the answers to the above questions are not yielding satisfactory answers, you may want to consider an individual disability income policy to make up the difference. Individual disability income policies are usually very inexpensive, the money you get is not taxed like on a corporate plan, and several companies, for a little extra money, have a Return of Premium rider on it so if you never use the benefit your premium money will be returned to you at age 65.

While other items could certainly be included in this list, hitting the items discussed would definitely put you in a very secure position in the event another downturn hits. Good luck to you and may the bull come back quickly.