The Impossible Plan Part 1

I got a call from a long-time client. We'd been through a lot, Jack and I, there have been a lot if very good times and a few not so good. One of the worst was 2002 when absolutely nothing worked and everyone should have stayed in bed for the entire year. Then New Year 2003 brought joy and a very nice double-digit some percent return across the board making everyone smile - a lot. But the rest of the 21st century was not a cake walk and every point gained seemed strained right to the end of 2007 when the markets petered out in December and fell into January 08 like a drunken sailor stumbling out of a New York taxi at three in the morning. Little did we know what was in store for us later that year.

In the early days of the new century I'd get folks come to the office expecting to chat me up for 20% something returns with little risk or volatility. They'd read about it in some magazine or point to some cousin or friend who did spectacularly during the 90s betting on dot coms and telecoms and say to me, ' I want you to do that for me.' Unfortunately the only thing I could show them was the other side of my door with the admonishment that I wasn't the broker they were looking for. ' You're looking for someone who likes your money more than you.'

Today people know better and the unrealistic pipe dream returns of the 90s are long gone and folks now simply want return of principal and get back lost profits.

Speaking of lost profits, and I am, I have people repeat to me what they hear on radio and television. One of the things is that investment risk gets less the longer one stays invested. A client will say, 'I've been with you for 20 years and still lost money in 2008 and I want to know what's with that because smart people say that by now I shouldn't have any risk at all!' Then they pull out a Morningstar report that illustrates risk decreasing as the years roll by.

I try to explain that yes, risk on equities decreases on the principal invested as time goes on but if you consider your appreciated principal your current value than the risk is the same as the first year you originally inv ested. Got all that?

Getting back to my phone call. Jack said that we had to do something so the next time something like a global economic crisis hits he doesn't get financially hurt. I wanted to say something like the last time we had this deep of a depression was about 80-some years ago and unless he knew of the whereabouts of the Ponce de Leon's fountain of youth neither of us would be around facing this similar problem ever again. But, like a good soldier I simply bit my tongue.

I had some serious thinking to do. There were a lot more things to consider that simply moving money in and out of the market.