By The Skilled Investor, February 26, 2007, 10:42 am
.
.

Build Investment Asset Buffers to Protect Yourself from Market Volatility

You may be just as nervous as the next person is about investment risk. However, the coverage of your future expenses by your accumulated assets will determine whether you can actually manage, when risk really happens.

A previous article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a well-considered financial viewpoint. A stable set of financial beliefs can help you to keep focused and on track throughout your life. This follow-up article discusses the need to build asset buffers to anticipate future turbulence in asset market values and personal income.

Securities markets have more often delivered good rather than bad returns, which makes them worth participating in, if you can tolerate the volatility.

However, sometimes the equity markets in particular can decline in a very nasty manner. You can never tell when this will happen or whether it will be quick or slow. Rates of subsequent recovery in equity market values are similarly unpredictable.

Therefore, one requirement of investing is to ensure that you can ride out these negative equity market vicissitudes without being forced to liquidate or sell in a panic. More substantial asset buffers and better knowledge of the projected coverage of your expenses by your less volatile cash and fixed income assets will help you to ride out these bad times.

How VeriPlan can help: VeriPlan projects the safety margin that your cash and fixed income assets may provide to cover your projected expenses. This feature compares your projected expenses against the projected value of your cash and shorter-term fixed income assets. It simulates the situation when, simultaneously, the equity markets decline significantly and you lose all earned and retirement income sources. However unlikely this may seem, it tells you how strong you boat could be.

Bookmark on Your Favorite Service: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • StumbleUpon
  • Technorati
  • Digg
  • del.icio.us
  • Netscape
  • Reddit
  • YahooMyWeb
  • SphereIt
  • Furl
  • LinkaGoGo
  • Ma.gnolia
  • MisterWong
  • Netvouz
  • Simpy
Tags: , , , , , , , , , ,
.

If you like this article, please consider subscribing to our full text RSS feed. You can also subscribe via email, and new posts will be sent directly to your inbox.

.
READERS FAVORITES: Our Top 30 Articles for You to Read

  • The Optimal Investment Strategy for Individual Investors
  • Default under the Citibank Credit Card Contract
  • The Top 25 Best Low Cost US Money Market Funds
  • 10 Lower Cost S and P 500 Index Mutual Funds
  • Publish your blog news articles on traditional media center and newspaper websites
  • Traditional IRA and 401k Versus Roth IRA and Roth 401k Contributions
  • Factors Favoring Roth IRA and Roth 401k Plan Contributions
  • Rational Mutual Fund and ETF Selection
  • How unstable have stock market returns been over time?
  • Factors Favoring Roth IRA and Roth 401k Plan Contributions - Part 2
  • Screening Index Mutual Funds with IndexUniverse.com
  • American Funds - The Investment Company of America - Class A Shares (AIVSX) net a +3 Fund Authority Score
  • Analyze Multiple Personal Financial Planning Decisions Simultaneously with VeriPlan
  • Avoid High Turnover Mutual Funds and Active ETF Trading
  • Own Investment Mutual Funds and ETFs - Not Individual Securities
  • American Funds - Washington Mutual Investors Fund - Class A Shares (AWSHX) acquire a +2 Fund Authority Score
  • Financial Industry Product Development and Your Best Interests
  • Objective Personal Finance Answers Are Hard to Find
  • Mutual Fund and ETF Screening Requirements
  • The Financial Services Industry is Still the Largest S&P 500 Sector - Even after the Collapse of its Stock Values
  • Develop Your Own Personal Financial Planning Skills - Step 1 of 10 Financial Planning Steps in the Right Direction
  • Always Completely Diversify Your Investment Portfolio
  • Most Individual Investors Are Poor Personal Portfolio Managers
  • Excessive Investment Expenses Take 2% of Individual Investor Assets Every Year
  • Rational Mutual Fund and ETF Screening Rules
  • Make More Optimal Tradeoffs Between Investment Risk and Return
  • Fee-Only Compensation Aligns the Interests of Clients and their Financial Advisors
  • Where's Waldo? - The illusion of superior professional mutual fund manager performance.
  • Choose Lower Mutual Fund and ETF Management Fees
  • March 5 2007 Edition of the Festival of Stocks
  • .
    Article comments

    Add your own comment or set a trackback

    COMMENT POLICY:

    We appreciate anyone who takes the time to leave a legitimate comment. We accept comments that thoughtfully address the substance of an article. All comments are moderated before they appear. All spam gets trashed.

    Currently no comments

    1. No comment yet

    Add your own comment



    Follow comments according to this article through a RSS 2.0 feed

    Article comments

    NOTICE: YOU MUST AGREE TO THE TERMS OF USE TO USE THIS WEBSITE.

    These links will take you to our Terms of Use, our Privacy Policy and our Copyright Policy.

    This site is solely for informational and educational purposes related to your personal, private, and non-commercial use.

    • In no way does this site constitute or provide investment advice under the laws and regulations of the United States of America and its various States or of any other country in the world.
    • This site does not collect any specific information on the investment situation of any reader.
    • This site does not render any advice on the basis of any readers' specific investment situation in accordance with the Investment Advisers Act of 1940, as amended.
    • In no way does this site constitute a solicitation or offer to sell securities of any kind.

    Copyright 2008 - Lawrence Russell and Company, All rights reserved worldwide.

    This site is financial publication of general and regular circulation. Except for reading and browsing via the World Wide Web, no part of this document or website may be reproduced, modified, disseminated, published, adapted in any manner or transferred without permission in writing from Lawrence Russell and Company.

    THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, FOR THIS WEBSITE, INCLUDING NO WARRANTY FOR MERCHANTABILITY AND NO WARRANTY FOR FITNESS FOR ANY PARTICULAR PURPOSE.

    Unless otherwise stated, there are no business arrangements of any kind between The Skilled Investor and any mutual fund, ETF, or other investment security or any company that may be featured in our articles. We do not accept any payments to influence what we write about or what we say. The Skilled Investor does allow advertisers to post their messages on our site, and it is entirely your choice whether or not to patronize any of these advertisers.

    "The Skilled Investor", "Skilled Investor", "Fund Authority," "Fund Authority Score," "VeriPlan", "Personal Finance Software for Your Lifetime", "Your Personal Financial Lifecycle Planner", and "Sensible and Scientific Financial and Investment Planning" are some of the trademarks of Lawrence Russell and Company. Other trademarks and service marks are the properties of their respective owners.


    Visit Our Objective Family Finance Blogs