May 22, 2024
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Guest commentary: Don’t live with losses, limit losses instead


By John Grace

In the same decade, the securities and real estate industries failed investors twice, in 2000-02 and 2008-09. 

It happened again in 2022.

Reflecting on my time as a 15-year-old Boy Scout working as a summer camp counselor at Lake Arrowhead Scout Camps, determined to attain the rank of Eagle Scout, I recall a valuable lesson from the U.S. Forest Service Foresters about the perils of fire suppression. 

Little did I know then, this lesson would later resonate in the world of finance. 

The Fed’s monetary policy intervention reminds me of forest fire suppression. 

When you suppress fire too much, any fire can become too big and intense to control. 

Similarly, investors can ill afford to have all of their eggs in any one basket because that basket could easily blow up in smoke, leading to significant losses.

Investors in stocks, bonds, and real estate were severely impacted. However, active management can play a crucial role in limiting losses in stocks and bonds and, most importantly, in reducing risk by diversifying your portfolio with a mix of alternative assets. 

This is an opportune time to consider reducing your exposure to traditional real estate. 

Take a closer look at your options, such as positions in data center infrastructure (AI is here to stay), diversifying into student housing, multi-family dwellings, affordable housing, and industrial properties, with a focus on the Sun Belt outside of California. 

These alternative assets not only offer growth potential but also provide a secure hedge against market volatility.

Why is this important, you ask? “Among older adults who are not yet retired, 94% said it is important for them to have a plan to manage their money during retirement. Among them, just 21% of them have a plan for how to manage their money in retirement,” according to Indira Venkat, senior vice president of research at AARP in reviewing the findings in the AARP Financial Security Trends Survey, conducted in January and released in April that included interviews with over 8.300 consumers over 30 that includes every state in the U.S. Planning for retirement is not just a financial decision, it’s a lifestyle choice that can significantly impact your future comfort and security.

One of the survey’s biggest findings is that 61% of those 50 and up are worried they won’t have enough money for retirement, reports Venkat, in her USA TODAY interview. 

Once you break those numbers down even more, one in five people who have not retired have no savings at all, Venkat said.

“Among retirement savers who are 50 and over, there’s a growing number compared to last year that don’t expect that they will save sufficiently if they continue at the current rate that they save,” she said. 

Those numbers “should be a wake-up call for all of us,” she said.

Let’s learn from the Oracle of Omaha. On Feb. 28, when Warren Buffett’s Berkshire Hathaway neared a $1 trillion market capitalization, Mr. Buffett asserted that it could have been worth twice as much today if he had limited his losses sooner. This insight from one of the most successful investors in the world can provide a new perspective and enlighten your investment strategy.

Thanks to active management, technology, and the work of agile financial advisors, investors no longer need to live with losses. As we demonstrated to investors in 2008 and 2022, there are ways to limit your losses. This time is different. Plan ahead. Don’t drown, turn your assets around. With the right strategies and tools, you can take control of your investments and steer them toward your financial success.

John Grace is a financial planner and president of Investor’s Advantage in Thousand Oaks.