The effects of Japan’s disasters are being felt around the globe, creating a sense of helplessness in some and a need for immediate reaction from others. How we react to such events can have lasting effects. Below are three strategies to help investors move forward with thoughtful intent:
1. Look beyond the headlines.
Headline risk is an immediate and emotional response to recent news about a company, country, or sector of the economy. The investment markets have pulled back sharply in response to Japan’s earthquake, but have the overall market fundamentals changed sufficiently to warrant the amount of decline? Often, natural disasters and other negative events have only a short-term impact on world investment markets. For example, while the 1987 market crash produced the largest one-day percentage drop in Dow history (over 22%), the markets finished that year with a positive return. Headlines are designed to play on emotions. Act, but don’t blindly react accordingly.
2. Don’t ignore the situation.
The reality is, not every company or market sector moves in lock-step. Nuclear power concerns in Japan and oil issues in the Middle East are legitimate concerns for an ongoing energy conversation. But — don’t get overwhelmed and change everything, nor should you just sit there and do nothing. Instead, focus on the economic sectors impacted and make sure your portfolio is allocated appropriately based on current factors, long-term fundamentals and personal time horizons.
3. Participate in the rebuilding.
For those with a longer time horizon to retirement, recognize that Japan is the world’s third largest economy (behind the U.S. and China) and that it will rebuild and foster long-term growth in its region. Similar to the financial reactions of other catastrophic events, Japanese markets dropped almost 17% in the immediate wake of this disaster. So, we don’t believe it prudent to exit the markets after that fall. In fact, many multinational corporations also sold off after the disaster, in spite of limited exposure to Japan’s economy. Humanitarians and investors, alike, must look ahead. Carefully, invest some charitable dollars for the support and well-being of the survivors, while being intentional in directing investment dollars to industries and companies that may grow as Japan recovers.
DRUMMOND OSBORN, CFP is President and Senior Advisor of OSBORN Wealth Management, a LaPorte-based financial advisory firm focused on conservative portfolio management, insightful retirement planning and socially responsible investments. He can be contact at 1-800-889-7401 or Drummond@OsbornWealthManagement.com.
