Earlier this fall, when I drove past the old Auburn Hills Palace site, the parking lot was chock-full of new trucks. A few weeks later, as if by magic, the field was empty. Then, at the beginning of the month, the lot was suddenly full again.
I don’t mean to be presumptuous, but I think this all has something to do with supply chain issues as well as the shortage of computer chips. And as you well know, concerns about the supply chain and rising inflation have been in the headlines.
From an investment perspective, we are definitely a global economy. So when a pebble falls on the other side of the world, we can feel the ripple effect here. As an investment advisor, however, I’m concerned that this is a big boulder, not just a small pebble.
I am no tech expert by any stretch of the imagination, but most of the specialty computer chips are made almost exclusively in Taiwan. Unfortunately, the tension between Taiwan and China seems to be escalating.
If the tension continues to mount and we can no longer rely on Taiwan, the negative impact on our economy and the supply chain would be significant. Just like it would be for investors. What about oil? After all, we are again dependent on foreign production.
I’m not trying to scare investors off, but I’m concerned about the complacency that I see in many investors. A market downturn is not necessarily imminent, but I think there are a number of risks that are either overlooked or outright ignored.
There are many newbie investors who have never experienced a significant and prolonged market downturn. And yes, there has been a rapid rebound from the onset of the pandemic slowing down. It was also unprecedented.
I’m afraid there won’t be an immediate rebound next time around. That emotions overtake sensitivity and that some abandon their long-term investment strategy. I should also add that I suspect many are not as diverse as they think they are.
For example, a common stock market metric is the Standard and Poor’s 500 Index, which some investors try to replicate. And many mistakenly think that the index has 500 equal bands, which makes them diversified as well.
But it’s a weighted index; there are no equal slices. Only five stocks represent 22% of the index. Simply put, I am a huge fan of real diversification in a long term portfolio to help minimize risk. Putting money into something that tries to mirror the S&P Index is not necessarily diversification.
Throughout my career, I have emphasized to retirees that retirement can easily be a third of their life. The financial enemy of retirees is inflation, which unfortunately seems to be pointing its head at the moment. And as costs rise, it becomes more difficult to maintain your lifestyle, especially on a fixed income.
That being said, there have always been issues and concerns, nationally, globally and politically. If you dwell on it, you might rationalize that you shouldn’t be invested at all. But if you have a plan, are reasonably diverse, and can handle tough times, you have all the ingredients to be a successful long-term investor.
Securities offered by LPL Financial, member of FINRA / SIPC. Email your questions to [email protected] Ken is a registered representative of LPL Financial. Ken is vice president of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risks, including loss of capital. No strategy ensures success or protects against loss.