Chicago – I turn 55 today. As a member of the baby boom
generation who hopes he’s ageing like a fine wine and not turning into vinegar,
I abhor the idea of losing money again in a 2008-style meltdown.
If I've learned anything, it's that I'm a lousy psychic, so
I don't try to guess what any market will be doing in the future.
Having speculated in precious metals, tech stocks and bought
and sold at the wrong moments, I've made plenty of mistakes and run off the
cliff with the flock far too many times. Here are some lessons I learned along
the way.
Being liquid is golden
Hewing to Ben Franklin's advice, savings is my top priority.
When we hit a family health crisis in 2009-2010, I was glad
we had cash reserves and an investment club portfolio of established
dividend-paying stocks that I could liquidate.
We were able to cover huge out-of-pocket expenses, which
were more than double our out-of-pocket health-insurance deductible of $6 000.
Now I'm gradually rebuilding our cash in a federally insured money-market
account and a short-term bond fund.
At the same time, we are also saving for our two daughters'
college educations in a low-cost college savings plan and funding our
retirement savings.
The details of downside risk are critical
I've already lived through 10 bear markets, which normally
occur only about once every decade. This young century has seen two
bubble-bursting downturns so far.
The average duration, as calculated by Strategas Partners,
has been 21 months, with an average decline in value of investments of about
40%.
I never again want to be in the situation where I'm looking
at having lost that much of our portfolio, as was the case in 2008 (it's mostly
recovered, but we rebalanced to more than 50% fixed-income).
I'm working to rebuild a lower "beta" portfolio,
that is, one that isn't as closely correlated to the S&P 500 large-stock
index.
Human capital is my best investment
As I strive to learn more about risk, I'm learning as much
as I can about emerging areas of growth: healthcare, alternative/non-US
investments, derivatives and global resource allocation.
So I look at opportunities with a vigilant eye on downside
risk measures, like Sortino Ratios and correlation, focusing on the likelihood
that different asset classes will head south at the same time (as they did in
2008).
Yet I'm still interested in risking some capital on the
future: alternative energy, international development and climate change
strategies are on my radar screen.
Knowledge is the commodity I want to keep investing in as I
get older. Is there an index fund for that?
Back to the future
In my birth year at the peak of the baby boom, the yearly
inflation rate was 3.34% and a gallon of gas cost 24 cents. Who would've
thought that inflation and mortgage interest rates now would be less (on a
nominal annualised basis) than at the end of the Eisenhower era?
I see opportunities that present themselves as I watch the
world spin faster and faster. The earth's population has more than doubled in
my lifetime, a rate of growth unprecedented in human history.
All of those new souls will need food, water, places to live
and the amenities of daily living. We'll need new tools to meet the demands of
population growth so that we don't wreck our planet.
That's why it's still a good time to buy global stocks and
reduce debt on the personal – and national – levels.
And it's never a bad time to learn something new. I want to
know how the global supply chain works, the latest technology/media and the
evolving political situation in Washington, China, India and the Middle East.
Travel, reading, cooking, making music and taking long walks
or bike rides are much more important to me going forward.
My goal? To get to the point that I don't have to worry
about investing at all and spend more time with my family. The only inevitable
truth about history is that change is a river that never runs dry. I'm just
trying to avoid getting tossed on the rocks while navigating the rapids.
- Reuters
* John Wasik is a Reuters columnist. Opinions expressed are
his own.