Ten Tips to Protect Investors From Any Financial Storm
Written by Alan Haft
Here’s a morbid thought - which would you rather experience; an earthquake or hurricane?
Tough choice? For me it’s not.
Having lived through both, experience tells me an earthquake happens “just like that," with no preparation, no foreshadowing, no time for anything except to hold on for dear life.
On the flip side of the coin, we have the evil and nasty hurricane. At least with those things, we have some time to prepare. Endless weather reports, waiting around to see if the thing is actually going to hit and stocking up at Costco for extra Kool Aid. Tedious, yes, but plenty of time to prepare is a good thing.
Hurricanes remind me of the storms brewing around the world right now. With the Euro going bust, rising unemployment and skyrocketing deficits, we have a fuse box of derivatives that might ignite any number of unpredictable chain reactions.
I figured it couldn’t hurt to share ten things you can do to in case a giant category five does actually hit. In no order of priority, here’s my list:
1. IN STOCKS?
“Should I be in stocks?”
I hear this one all the time. In addressing this, the most important thing you should be asking yourself is, “how much time do I have until I need my money?”
If your answer is something to the effect of “within a few years,” then regardless of what’s happening around the world right now, the answer is “no, you shouldn’t have much exposure to them.” You should have a higher concentration in more defensive things such as cash and/or short term bonds.
Not sure what you should do? Use the Rule of 100 as a guideline (or the Rule of 120, given we’re living longer these days): subtract your age from whichever number you please and the answer is the ballpark percentage of a diversified stock portfolio you should be invested in.
Sometimes it’s as simple as that.
2. QUALITY IS KING
Speaking of stocks, you should also be asking yourself something to the effect of “what kind of stocks am I in?”
If you’re invested in Johnny’s Lemonade Stand Company that was launched by skinny Johnny across the street last Saturday, needless to say, you have a far worse chance of weathering a storm as opposed to being invested in a blue chip company that’s been around a hundred years with deep pockets to weather through the bad.
In this day and age, quality reigns supreme.
3. CASH RULES
My beautiful CFP mom used to say, “cash flow minimizes the ills.”
Imagine this: your stocks get pummeled by Hurricane Deficit and while you’re holding on waiting for them to come back, they’re paying you cash along the way.
Sound good? It certainly does to me. I dig the ring to it and that’s why I like high quality stocks that send me dividends to pay for a couple of Doritos while I wait for its value to come back.
Speaking of food....
4. NATIONAL OR MULTI-NATIONAL?
Quarter Pounder with cheese? On a very rare rushed occasion I’ll force myself to down one of these babies (and regret it). But if that’s not bad enough, given Mickey D’s makes around half their money overseas, these days my stock portfolio might not like this little key fact as well.
Especially during these times, knowing a little about where your companies generate their revenue from is essential. After all, should France explode, you certainly don’t want to find out after the fact that your company makes all their money from selling purses to the French.
5. EMBRACE THE SALE
Imagine this: Best Buy is on fire and the cranky CEO blurts out, “big screens on sale for a hundred bucks!”
Would you head to the store? I would. And that’s why if all hell breaks loose, the markets just might be blurting out the same.
Apple at ten bucks? Bring it on.
At the moment the market is washing out to sea, you’ll very likely find some great bargains sloshing around in those stormy riptides.
6. BONDS: LOOKING GOOD?
Feeling good about those bonds you’re in? Great. If Hurricane Iran vs Israel crashes up shore, decent chance they shouldn’t suffer as much damage as your stocks. But knowing how long your bonds are is more important than you might think.
Rule of thumb: the “longer” the bond, the more likely they’ll lose value if interest rates spike. Conversely, the shorter the bond, the less you should suffer.
Confused? Don’t know what I’m talking about? I don’t blame you. This stuff can be tricky.
That’s what tip nine is for. Hang in there and embrace the anticipation because that one is coming right up.
7. CREDIT COUNTS
Whether you’re invested in individuals or a fund of bonds, similar to understanding your bond’s length is the importance of knowing its credit quality.
Maybe you’re holding a bond that’s tossing off nine percent. Fantastic. Good stuff. Well done. High five. But more importantly, ask yourself “why is it throwing off that much?” Chances are the credit quality of that bond isn’t all that great.
Can anyone say “Johnny’s Lemonade Stand?”
If Hurricane Deficit flares up, remember Warren Buffet’s famous line, “Only when the tide goes out do you discover who's been swimming naked.”
Translation: the swimmers might look good from the chest up but when the tide goes out...look out. Even the most attractive of the bunch could inspire starving sharks to eat those Quarter Pounders with cheese instead.
8. HEDGE IT
Not sure what to do? Who can blame you? Few people do, and those who say they do typically don’t know what they’re talking about.
That’s why the smart guys often hedge their bets by tossing a small amount of gold into their mix with some inverse ETFs and things called “stop losses” sometimes thrown in as well.
Might not be a bad call. Be sure to crack open a cold one and check these out.
And that’s what tip nine is all about...
9. EDUCATE YOURSELF
I didn’t like school all that much; the food was terrible and the good looking girls never paid any attention to me. But no doubt, a good education is indeed important, and that’s what this one is all about.
Humbling, but the truth of the matter is that with rare exception, when it comes to your retirement, you’re very likely on your own.
For most, the days of rock solid pensions are long gone and as such, you really need to educate yourself.
And with that, congrats. If you made it this far into my piece, not only are you my hero but you at least have some interest in building your nest egg on a stronger foundation.
Last, but not least, (drum roll please), because this one is at the very top of my list....
10. DON’T PANIC
Should markets fall, Europe implode or Uncle Sam catch fire, don’t panic. Remember: the worst of times are often followed by the best.
Educate yourself, follow the tips above, hang tough, think “quality” and congrats: during this very unpredictable time we’re in, we all just might find some shelter from the storm.
About the Author: Alan Haft is a retirement income planner, author of three books including the national bestseller, You Can Never Be Too Rich, and makes frequent appearances in national print, television, and radio media. He can be reached at [email protected].
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.