Debt Reduction Advice | Debt Reduction Advice

The last few years have been difficult financially and economically for everyone and when you stop and think about it the past decade has had a lot of challenges. The tech bubble burst to start the decade, decimating portfolios that were too heavily exposed to high-flying technology stocks. The attacks on September 11^th led to years of instability in the financial markets and geopolitical turmoil worldwide. After a few years of steady, boring stock market performance, the credit crunch and financial crisis was the next tidal wave knocking over investors.

Through it all, most investors head into the next decade like a boxer that has been knocked down repeatedly. Some of the traditional beliefs about investing continue to hold true for most investors but there are a growing number of alternative viewpoints that are gaining tractions. Here are several challenges to traditional thinking for investors.

Cash Is King: Cash has traditionally looked been looked at as a boring investment without any potential for meaningful returns, but the preservation of capital has become a priority for many investors who simply don’t have the capacity to struggle through yet another bear market. Most investors will keep a larger percentage of cash in their portfolio during the next decade and be willing to sacrifice some potential returns in exchange for safety.

Stocks are Inherently Risky: You might say that banks and insurance companies overextended themselves leading up to the financial crisis, but all asset classes paid for the mistakes of a few. It made very little sense for some stocks to lose more than 50% of their value when they had no exposure to bad loans and mortgage backed securities, but a rising tide lifts all ships and a falling tide can lower them just as easily. Bull markets can make investors forget about the risks inherent in stocks but we’ve had several reminders during the last decade.

Regulation is Coming: Regulation has always been in place, but it’s been largely a hands-off regulation of the financial markets. But it doesn’t take many Bernie Madoff’s, bank failures, bailouts, and stimulus packages before regulators realize that they look awfully bad right now. Not every catastrophe can be avoided with more regulation, but more regulation is what’s coming if for no other reason than to create the illusion of oversight and restore faith in the system. Financial institutions will have a more difficult time getting in over their heads with regulators monitoring their activity.

Risk Can be Managed: Investors historically have selected a mix of stocks, bonds, and mutual funds, invested, and crossed their fingers. In light of the losses sustained through traditional diversification, investors are looking for more sophisticated ways to manage risk and they’re finding it with assets classes that are not correlated to traditional financial markets. Investments in currencies, commodities, real estate, and other assets unrelated to the stock market are likely to increase dramatically during the next decade.