Why You Should Look Back to 2009 One Last Time

February 10, 2010by Hoy Grimm0

Let’s take a quick poll. How long does it take you to stop writing “2009” on your checks and documents now that 2010 is here? For us, it takes a while –especially after all we lived through last year.

For 365 days, we faced unprecedented economic, political and financial challenges and it’s hard for us to put last year to bed. Did you know that in the last three months of 2009, one million Americans lost their homes through foreclosure? One million!  And they tell us that things are getting better? Before we relegate last year to a scratched out handwriting error, let’s take one last look back at 2009 and list some valuable lessons that investors learned.

The recession of 2008-2009 (and maybe 2010?) taught us that there was no place to hide.  Whether you owned an annuity, commodity or real estate in a community, the value of your investments likely went down substantially in late 2008 and early 2009.   Many thought diversification meant having different brokerage accounts with three financial salespeople.  Others thought that commodities such as oil and gold would offer a buffer from the financial maelstrom.

Faced with defaults and  unprecedented volatility in bonds, utilities and preferred stocks, even the most seasoned bond investor found it near impossible to maintain their “buy and hold” strategy that had been bullet-proof until now. Many new financial and insurance investments that were sold as safe, “guaranteed” and liquid were locked up and blown out of the water. Even if you were lucky enough to have cash in the bank, you were faced with the fear that your bank might fold and take your savings with it.  Chances are, you didn’t face this crisis without discovering a chink or two in your personal financial armor.

These financial risks aren’t limited to the investments in your retirement accounts or the bonds in your brokerage account.  2009 also raised concerns about the stability of corporate perks such as health insurance and pension benefits that retirees have relied upon for decades without concern. A number of Fortune 500 companies and government enterprises, like TVA and the Social Security Administration, suspended cost-of-living increases for those who receive retirement benefits.

Other companies went further and reduced or even eliminated these options.  To compound the problem, many of these blue-chip companies slashed or eliminated their common stock dividends. Many retirees that were loyal shareholders saw the quarterly cash payments from these tried and true titans of industry disappear.

Imagine you worked for one of these companies for three decades, and even in retirement you’ve remained a loyal shareholder.  You’ve benefitted from a steady stream of increasing dividends from the company’s stock.  During this recession, you learned that those dividends weren’t bullet-proof either.  And guess what happened to the value of the stock when the dividend was cut?  It declined substantially as well.

In conversations with the new clients that moved to LeConte Wealth Management last year, a few recurring themes emerged.   These investors realized that regardless of the size of their pensions, the equity in their homes, or the value of their brokerage accounts, they had doubts about their financial independence.

In addressing their concerns, we discovered in every instance that they had relied on a financial future built without a “blueprint.” To further the analogy, they often used a “builder” (stockbroker or financial salesperson) that didn’t have real world experience as a contractor. We’re not talking about the well known Ponzi schemes unearthed in New York and East Tennessee that fell apart in 2009, but about the army of skilled salespeople that are better at sounding like a financial adviser than actually being one.

To their credit, these new clients controlled their spending and saved diligently for their future. When it came time to invest, they did so in good faith through their favorite financial institution. Unfortunately the salespeople at banks, insurance companies or brokerage firms do what salespeople are paid to do. They make their pitch, close the sale and move on to the next sales prospect. They weren’t compensated to be an adviser and their “advice” lacked the discipline that a customized plan (the blueprint) would have provided.

As you might imagine, this approach created problems when the uncertainties of 2009 fostered enough fear that inexperienced brokers and “financial advisers” panicked. Reacting to their fears, they sold many clients out at the wrong time and didn’t get back in. The problems compounded when clients, with no long-term plan to anchor their decision making, mistakenly agreed with their salesperson’s knee-jerk reaction to sell out.  At this point, good faith became “Good luck!” (or “Good Lord!”).

As these shoddy financial foundations crumbled, investors began to realize that they should have asked for a customized blueprint for their specific financial situation. Such a plan might have kept them focused more on their long-term goals and less on the day-to-day emotional turmoil of living through 2009.

As a result, 2009 was the year when many investors we spoke with finally got serious about their financial future—maybe you made a similar decision. Once these folks realized their finances weren’t bullet-proof, they sought out a trusted adviser to help them repair their armor.

Instead of a banker, broker or salesperson skilled in selling the next hot investment fad, they began the process of getting serious by finding an advisory firm.  Ideally, one that focused on their financial goals rather than their own financial self-interest.  One with an experienced staff of credentialed professionals that have been through markets like this before and that work collectively to deliver world-class client service.   A firm whose independence can avoid conflicts of interest brought on by proprietary products and compensation practices.

Fortunately, there were a couple of positive lessons to take away from last year.  Most investors who stayed focused on their long-term goals and kept their emotions in check were handsomely rewarded. If they followed the astute advice of Warren Buffet who advised, “Be greedy when others are fearful and fearful when others are greedy,” they were in the right place to catch the huge rebound in stocks and bonds in the latter half of 2009. After all, greed and fear move the markets. Professionals keep their emotions in check.

The final takeaway from 2009 is that America is still the land of opportunity. Despite the economic problems, political turmoil and global uncertainty of last year, we live in a country that rewards hard work and initiative. Investors who decided to take responsibility last year learned that this is true. And despite the uncertain future that ushers in 2010, opportunities exist for investors who have a plan and the courage to stay focused on it.

Over the balance of 2010, we will lay out the steps to follow so you can take control of your financial destiny. Hopefully by the time you’re writing “2011” on a check, you will be in control of your financial future.

Please call us at 865-379-8200 for more information.

Hoy Grimm

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