It’s not the Age of Aquarius or the New Paradigm, it’s the New Normal. Investment pundits are declaring an end to double-digit growth in your investment portfolio, coupled with double-digit inflation in the future. And just when you were breathing a sigh of relief that the recession was over. What’s a middle-aged investor to do?
In New York people may have been flocking to see the scandalous Hair back in the 60’s, but I don’t think too many of them worried a heck of lot about their portfolio return. Hey, in the era of free love, it would all work out, right? Fast-forward to 1998 and all of sudden EVERYONE was focused on making oodles of money in the stock market. Asset allocation and bonds were your grandfather’s car – and it was a clunker! If you didn’t have all your money in tech stocks you were behind the times, baby.
That approach didn’t turn out so well, did it? And since then, millions of baby boomers have inherited those boring bonds and dividend-paying stocks from that clunker of a portfolio that kept chugging right along. Thank goodness for grandpa.
What’s the point here? That the NEW NORMAL is really just about prudent personal finance. Get your ducks in a row. Actually get them in about 10 rows up & down. It’s called good, old-fashioned asset allocation. And I don’t mean buy an asset allocation fund and be done. It’s about making sure all of your assets (investments and otherwise) are working towards the same goal. The NEW NORMAL doesn’t mean sacrifice it means rediscovering some tried and true personal finance principles.
Here are 5 ways to get comfortable with the NEW NORMAL in your financial life:
1. Stop adding to your emergency fund. WHAT??? After you have accumulated 3-6 months of expenses, stop putting all your extra money in a savings account paying .001%. If you don’t keep up with inflation, you will be buying a slice of bread a week instead of the loaf.
2. Figure out how much you’re spending. Is it where you want to be spending your money? I’ll avoid the dreaded word “budget” here, but have a conversation with yourself & and any of your co-spenders about where the money goes. See the SEASONAL BUDGET if you need help getting started.
3. Think about how you are going to pay for things (like food, shelter and medicine) when you are old and gray. And celebrating your 90th birthday in assisted living. Where you are putting your money NOW will dictate where you spend it THEN.
4. Revisit your insurance coverage. Insurance policies may be the most boring, obtuse documents to read, but do you really know what you’ve got? Life, disability, homeowners, auto,business, long-term care. You probably need some amount of most of them, but do you have enough? Or do you have too much?
5. Review your investments. We love doing this when times are good, but avoid it like the swine flu when the news is bad. Well, guess what? There’s a vaccine for the swine flu. You may still get sick, but if you’ve been vaccinated you’ll probably survive with little discomfort. So, make sure your investment portfolio has been vaccinated, too. Run some worse-case scenarios to see what happens when those solar companies go belly-up. Or inflation doubles and your CDs don’t. What if the price of gold drops back to its historical average? There’s nothing wrong with a little old-fashioned asset allocation.
What does your NEW NORMAL look like?