I recently had a dialogue with a client that went like this:



Sorry to keep bugging you, but I have one more question.  I think you know me as being a non-reactionary person.  In fact I like to set back and watch as things occur to see how others are reacting, which may be bad sometimes.  I just noted something in your original message, and just wanted to touch base with you.  You stated,  "I’m convinced that we have a financial crisis on the horizon."  I guess I would like to know a little more of your thoughts in regards to:

1) Is it a problem Globally, U.S. Economics, U.S. Banks, citizen debt,etc., or all of the above?

2) Do we need to make any 'conservative' moves to our investments to prepare for a possible 'financial crisis?'

I don't want to live in fear, but I do want to live smart.  Your input and opinion is not only appreciated, but is also highly respected.




Thank you for asking and inviting me to expand on the issue.  That that the average American heading into retirement has just a little more than enough money to live for three years at their current standard of living is a crisis that affects all of us.  The first issue that comes to mind with this is an increase in the number of “have-nots” relative to the “haves” and generally more Americans surviving solely on social security due to depleted or nearly depleted retirement savings and the near extinction of the corporate pension plan.  The ramifications of this might start with postponed or cancelled retirement parties which is a bummer for the company lush who delights in every opportunity to end work at noon on Fridays to celebrate a retirement of someone he vaguely knows.  Aside from this tragedy, other consequences include increased personal and familial financial stress, poverty, homelessness, strain on the Medicaid system due to increased demands, increased mental illness, increases in costs of medical care and all of this stress and cost is dispersed among the “haves”.  All of these problems have financial impact on the society as a whole.  In an increasingly socialistic style of government the quick “fix” is increased taxes to support further government expansion.  However, there are significant economic negatives to raising taxes and expanding our government.  The current regime appears comfortable in expanding the balance sheet and increasing our national debt, currently at $18.2 trillion.  The competing approach would result in added pressure to stimulate business growth in order to generate increases in revenue while reducing governmental spending.  Currently, the majority of our federal budget goes to the entitlement programs so these programs become increasingly needs-based and perhaps income/asset tested.  Clearly it is a complicated issue.  The question you are asking is what can be or should be done specifically inside your portfolio to attempt to hedge against this risk.  That would be very difficult to predict and highly speculative because there are a lot of variables to the equation and varied approaches that could impact stock sectors differently.  Beyond this issue, I do believe that equity (stocks) ownership is our best combatant against the greatest threat which is the risk of outliving your money.  So, continuing to invest heavily in an equity based portfolio is what I believe to be our best defense against these risks and inflation.  My professional endeavor is to get in front of as many people as possible to help them personally to develop a financial plan for their future and prepare appropriately for their retirement years.  For my younger clients that looks a lot like a Sherpa leading a team of explorers along the trek to summit Everest.  We prepare a set of maps for where we’re going and the checkpoints along the way.  Continuously along the trek we check the status of the equipment to ensure it is in good condition for the stretch of trail that is next to come.  For my clients who are near, at, or in retirement it is different.  I am looking at their income needs above what their pension and social security will provide to determine how much do they need in their portfolio to feel comfortable about the decision to retire.  Then, I am looking at the safest AND the most effective way to distribute money from their retirement nest egg to provide them the greatest amount of income on top of their pensions and social security with the least amount of market risk on the dollars they’re withdrawing or will be withdrawing for as long as the next 10 years.  Finally, I’m prescribing allocation recommendations for the entire nest egg according to the outcome of the previously stated analysis.  Both the retirement income plan and the investment analysis are reviewed regularly to ensure they’re performing in line with expectations.  Sound fun to you?  I’m guessing probably not.  But understand that I’m crazy about this…I thoroughly enjoy it.  I’ve seen a lot of other advisor’s work and let me nicely say that there is AMPLE reason for 2nd opinions in my field.