China Financial Planning

Already have a planner back home?  Great news.  Now check up on him.

Many China expats already have financial plans in place – and that’s great news.   If you already have a comprehensive strategy for meeting all of your life goals – particularly retirement and tuition – then you’re in better shape than most. 

It still may be appropriate, however, to meet with someone who is familiar with your new situation here in China.  As an expat, there are some things that you can now that you can’t do from back home – and vice versa.  It’s important to know your options – and your responsibilities.

Three broad areas to consider for China-based expats who rely on a US or European-based financial planner:

Is your plan still appropriate for your situation? 

China isn’t a vacation for you – it’s hard work.  Make sure that your money is working hard as well.  Many expats come here for a short-term assignment and then end ups staying for years.  Have there been any big changes in your lifestyle, career or household while you’ve been away?  One of the biggest challenges to meeting your financial goals is that they tend to be moving targets.  If you are working with a planner who lives back home, make sure you are in regular contact with him via e-mail and make sure you schedule a time to sit down with him at least twice a year.

You are here – your planner is there.

The person who set up your plan - be he an IFA, an insurance broker or an accountant - is far away and in a different time zone.  It’s probably not a big deal if all you want to do is check on your account balances every few months – but if you want to do anything involving signatures, applications, check-ups or payments, the distance can make your life significantly more complicated.  Give yourself plenty of lead time, and make sure that your insurance companies and banks back home accept the documents and paperwork that you supply.  (This is especially important for check-ups, taxes, medical certifications and other matters that require some sort of approval or standard).  Chinese contracts and official documents are only legal in Mandarin.  Western institutions rarely accept anything but their own local language(s).  Someone’s got to figure out how to reconcile the two sets of demands – and it will probably end up being you.

This is China. 

US and European IFAs (independent financial advisors) should be well versed in the fundamentals of your situation, and thoroughly trained in all the instruments that they think you should buy.  But western IFAs tend to be pretty clueless when it comes to China.  Issues like health insurance & hospitals, wire transfers & banks, taxes and offshore investing can go over their heads quickly.  You may also end up missing out on offshore tax havens and international investment targets that your advisors back home just aren’t familiar with.  US IFAs are notorious for their domestic investment focus.

How can you tell if your plan is still intact – and that your professional staff is giving you the best advice?  First, you can measure your plans performance against major benchmarks to make sure your returns are strong.  But you should also pay attention to how good a job you are doing of continuing to drive your financial plan while you’re living here.  If you haven’t made any contributions or adjustments in 18 months, then your planner back home is neglecting your interests.  And finally, how much time (and/or stress) are you devoting to relatively simple issues like fund transfers or insurance issues? 

Some households are better off maintaining the plans they began at home – but if your situation has changed significantly since you’ve come to China, then you should consider augmenting your team of advisors with someone who specializes in China-based expats.

“Youth is wasted on the young.”   Many Americans think that line originally comes from Jimmy Stewart’s classic film, “It’s a Wonderful Life”, but it actually belongs to George Bernard Shaw.   Neither was referring to financial planning - though they could have been.  Young people have an incredibly valuable opportunity when it comes to preparing for the future – but many tend to squander it through delay, procrastination and misconception.

You’re a 25 year old professional, just starting your career.  Let’s say that you run the numbers and find that at the end of each month you have US$500 left over after rent, expenses and entertainment have been budgeted.  Is it worth it to start a long-term financial plan with this relatively modest amount of cash?

If  you start a savings plan when you are 25 and contribute $500 each month in a plan that is getting you a net return (after expenses, fees and taxes) of 9%, then you will have built up a fund of $915,372 by the time you are ready to retire at 65.  (That’s without inflation.  If price levels are rising at 3% per year, your actual spending power in 30 years would be equal to $372,580 of today’s dollars.  Not quite as impressive, but still damned convenient.)

Young people have more time to save, and thus can take a little more risk.  What if your $500 per month were to go into something a little more aggressive – like a 12% net return?  You’d wake up at 65 with $1,747,482 in the bank – or $711,272 if we adjust for 3% inflation.  

That ain’t hay.  The problem is that people in their 20s aren’t thinking about retirement, and the idea of sacrificing now for a payout 30 years in the future seems unrealistic.  But ask any middle-aged person who has started his financial planning in earnest and he’ll tell you that he wishes he had started when he was younger.

Don’t waste the opportunities of youth.  Start planning now – and you’ll have a lot more freedom and choice when it counts. 

Financial planning isn’t just about investing anymore.  While planners like to talk about offshore savings and investment, they are just part of the mix.   A thorough, integrated financial plan should also include life insurance, health care plans, disability insurance, tax planning, wills and trusts.  

There are 3 general phases to the financial planning process:

Phase 1) Making money. 
Priority:  Savings and offshore investment.

This is when you start building your nest egg.  At the beginning of this phase, your lump-sum or monthly contribution is driving the build-up of cash.  After a few years, however, the interest you receive is compounding to the point where your assets are growing exponentially.  Planners sometimes talk about the Rule of 7 – With a 10% return, your investment will double in roughly 7 years (and with a 7% rate of return you will double in 10 years).  The earlier you start, the higher the return, and the longer you leave the money invested, the stronger the impact of compounding. 
 

Phase 2) Spending money.
Priority:  Tuition. Retirement.  Real estate.  Big gifts for the kids. 

Most of us are saving for a specific reason.  You don’t go to a financial planner to help pay for your weekend vacation – but you might need a planner to help you figure out when and how you can retire. Spending money on big-ticket items is great — if you’ve prepared the funding in advance.  Seeing your first child graduate from university should be one of the high points of your life – but it may cost you as much as US$160,000 (in 2008 terms) to see it happen.  Any competent planner is going to help you identify your obligations and show you how to prepare for it.  The better ones will go so far as to tell you which of your goals is out of reach and what kinds of sacrifices you’ll need to make to achieve those that are possible.  Heed his advice early, or you’ll run the risk of incurring heavy debts and wrecking the financial structure you’ve worked so hard to build.  

Phase 3) Keeping money.
Priority: Tax planning.  Estate planning.  Wills.  Trusts.  Offshore banking.

The goal here is to keep the money away from the tax people – legally and prudently.  Wealthy individuals have always had access to the best minds and tools for shielding their assets from taxes, and now you can as well.  One of the advantages of working with a professional financial planner is that they are able to leverage the power of their pool of clients to negotiate better deals and get you access to professional services that would be beyond the reach of most investors.  Your planner will show you how to use offshore accounts, trusts and insurance products to avoid paying unnecessary taxes.  Unfortunately, you will also have to make provisions for what happens to your estate after you are gone.  Wills and trusts are small acts that will have a huge impact on your family in the event of your death.  It’s never too early to discuss estate planning with a trustworthy advisor. 

Preservation of capital also covers buying the proper insurance.  Life insurance is a requirement if your family relies on your earning power.  It’s really that simple.  But you should also consider health insurance part of your financial plan.  Nothing will upset your financial plans like serious illness – particularly if you are overseas.  Don’t be fooled by the low cost of a doctor’s visit or a prescription in China.  If you have any serious problems, you will probably need a level of care that far exceeds the capabilities of your local clinic.  If you have to go to Bangkok or Tokyo for treatment then you and your family will be paying for travel as well as top-notch medical care.  It starts out high and moves up quickly.  Without proper insurance coverage, you can find your savings wiped out in a hurry.   

Another type of insurance appropriate for SOME ex-pats is Income Protection, or disability insurance.  This type of coverage replaces your income when you are unable to work for a prolonged period.  Be warned, however, that this type of insurance is very pricey.  It makes sense when you have specific obligations to meet for a short time – like tuition payments.

Whether you use a professional financial planner or do it all yourself, make sure that you have a strategy for meeting your future obligations and goals.  The biggest single mistake you can make isn’t choosing the wrong investment – it’s failing to have a financial plan.

We’ve been doing a lot of thinking about medical insurance and health care plans lately — and I’m in the process of putting together a guide for buying international coverage for expat households living here in China.   But CNN published an article that every expat should read.  The title is  Avoid Hazards of Medical Treatment Abroad, and you can find it here:   http://edition.cnn.com/2008/TRAVEL/traveltips/02/28/medical.care.abroad/index.html  .

Is there a link between good insurance and good healthcare in China?  Yes and no.  If you get hit by a truck in rural Inner Mongolia, then even the best insurance plan in the world isn’t going to make a big difference to your quality of care.   But if you’re living in or around Shanghai then a good health-care plan will have a huge impact on your experience.    The good news is that a high-quality insurance program will make your life much, much easier.   The bad news?  Coverage is expensive in most places — and outrageous in the US.

Next:  So you want to buy International  Health Insurance

You have a demanding job in China and you have household assets around the world– and you’d like to hold on to both.  As every ex-pat manager in China knows – delegation in this part of the world takes a lot more time and effort than you thought it would.  How can you delegate your personal financial planning without putting your future at risk?      

You get the calls every day from IFAs - or Independent Financial Advisors.    They can be annoying at times but the irony is that some of these guys really do know what they’re talking about and can really help you get a handle on your long-term financial planning.  But some don’t.  How do you tell the difference?      

Begin your due diligence with a few basic questions.   Start from the perspective that there are two ways for an advisor or planner to ruin your life.  Some are simply dishonest - and these bastards are evil and toxic.  But even more dangerous is the well-meaning incompetent who really, truly believes that highly leveraged forex contracts are appropriate for middle-aged managers trying to send their kids to university and retire comfortably.  These are the guys who slip under your radar and get past your defenses because they are honest and sound credible.  In time, they’ll learn their trade – or find their dream-job in investment banking – but you don’t want to be the horror-story that helps them find their way. The single most important question to ask is “where is my money going”?  Good planners will never take possession of your funds – they are representing BIG, STABLE institutions that will be around come hell or high-water.  When the world ends, the only thing left will be cockroaches and insurance companies – and cockroaches don’t offer fund management services.  (insert your own insurance/MBA banker/lawyer joke here)       

5 burns that China-based financial planning clients need to beware of.

1) The Big Promise. If it sounds too good to be true, it probably is.  If the phrase ‘guaranteed’ is in the same sentence as ‘above-average returns’, you have a potential problem.  There are instruments out there that do offer certain guarantees, but these are usually linked to bonds – and pay out in the neighborhood of 4 – 6% per year over 5 – 10 year terms.  No one can guarantee that they can double your money in one year.  This is more of a local issue than an ex-pat one, but those of you with wives, girlfriends and associates who day-trade may find yourselves tempted.  Don’t go there.  

2) Churn & Burn. Some brokers and companies get paid by the transaction—not the performance.  Switching from one fund to another can be expensive – in some cases VERY expensive.  It doesn’t matter how blue your blue-chip instrument may be – when those chips get tossed around too much you can expect to lose a few – or a lot.  Good planners will make  sure that your account is not getting traded unnecessarily often – or that you are not paying for the trades.   

3) Selling proprietary products.Different instruments and services can have wildly different commissions for the seller – regardless of performance.  Big fund management companies like Merrill Lynch and HSBC don’t really care that much about individual front-line sales organizations (like your financial planner), and offer similar deals across the board.  Property developers, commodities traders, structured products, gold mines and other special situations should be analyzed on a case-by-case basis.  Some may be fine.  Others could be far riskier for you than for the guy offering you the inside track.  (The big banks and institutions have been offered EVERYTHING first.  If you are getting in on the ground floor, it’s because Wall Street and Exchange Square have already passed on it.)  

4) Opaque fee structures. This is a tricky one, because the best insurance companies tend to have the most maddening contracts and fee structures.  A good planner will take the time to attempt to explain things as clearly as possible.  It’s normal (but not necessary) to see entry fees, exit fees, administration fees, management fees and set-up fees.  The underlying mutual funds that will ultimately grow your investments have their OWN sets of fees.  You are looking for 2 things from a good planner, and the first is  an illustration or projection that is NET of fees.  (For instance, the firm I work with uses internal projections of 12% returns, but shows clients samples based on a 9% return – net of fees, and then some.)  The second thing to ask about is official documentation covering the significant fees and charges.  Your contract (and yes, you not only need to receive a contract – but you really have to read it) will include everything – but is very hard to figure out.  If you are investing in mutual funds through a large insurance company, you can expect to pay something in the neighborhood of 2 - 3% per year OVER THE LIFE OF YOUR INVESTMENT CONTRACT.  Don’t be afraid of high charges at the beginning – or fooled by seemingly inexpensive products that have big exit-fees or administration charges.  Your planner should be able to give you a life-of-contract fee breakdown (or at least an estimate), in addition to itemizing each individual charge or fee.  

5) Good intentions. Who is making the ultimate decision about where your funds end up?  Some front line salesman who is minding your portfolio while reading the financial headlines (or football match scores) - or a professional fund manager who does this for a living.  Selling and managing are two completely different jobs.  Balancing your portfolio shouldn’t be a hobby and it shouldn’t be a sideline.   No matter how much you may trust or respect the person selling you the funds, you need to know that he is supported by an organization with a systematic approach to investing that will remain in place after your man is back home with the lads at the local.    

This is list is just the beginning –and it may be more appropriate in China than it would be back home.  You should be skeptical, but not cynical.   The best way to protect yourself against financial planning trouble is to be proactive about educating yourself and checking out your prospective advisors thoroughly. 

Meet Bob Smith.Bob is 34 years old.  He’s been married for 10 years with 2 children.  Samantha is 9 (born in 1999) and Johnny is 7 (born 2001).How much is it going to cost Bob to meet 2 basic financial obligations – sending his two children to private university and providing a retirement nest-egg that will enable him and his wife to enjoy the lifestyle that they are accustomed to?Let’s assume that each child starts college at age 18 and graduates in 4 years (though many take 5 years!)  Tuition is $30,000 TODAY, with room and board coming in at $10,000.  Inflation – conservative at 3% per year – will raise the annual total to nearly $51,000 by the time Samantha enters university in 2017. This is what Bob will be paying in tuition during the 6 years from 2017 through 2015:

2017:  50,8352018:  52,3812019:  107,948 (heeeere’s Johnny, starting college)2020:  111,2322021:  57,307 (Happy Graduation, Samantha.  Now get a job.)2022:  59,050

His all-in price for sending 2 children through school?  $320,000 in 2008 dollars, and a whopping $438,753 by 2022 (thanks to inflation) — when he’s finished.  Ouch.  But remember – that calculation is based on tuition rising by 3% a year.    If inflation runs closer to 6%, he should plan on shelling out just a little over $602,000. Retirement planningAnd what about retirement?  Let’s say that Bob works until he’s 65 and plans on being retired for 25 years (i.e.: living until 90).  If he wants a retirement income of $100,000 per year in 2008 dollars, what will he need to retire?At 3% inflation Bob will need an income of $250,000 a year to equal today’s salary of $100,000 when he calls it quits in 2039.  To pull this off he will have to put away $3,196,000 – assuming a return on his investment funds of 9%.If inflation were 6% and his returns remain stable at 9%, he’d need an impressive $10,600,000 to build up the reserves needed to payout the equivalent of 100,000 per year in today’s terms.    

Do ex-pats in China need a will to protect their assets in the extremely unlikely event that they pass away while they are here?

Yes, No and Maybe.

Let’s take a look at the purpose and function of a Last Will and Testament. 

A will has 2 functions.  First, it is a legal document that carries the weight of a binding contract to transfer property from you estate to your beneficiaries.  Second, it is a clear, systematic declaration of your intentions for the disposal of your assets after your death.

Since China only recognizes Chinese language contracts in its legal system, most of the documents we are discussing here function as a written instruction and declaration of your intent – not legally binding contracts.    This helps friends, family or representatives from the consulate dispose of your assets quickly and efficiently.  BUT – in the event that a local Chinese person or business challenges your will in Chinese court, the English language document merely serves as a record of your intent. 

Who needs to have a formal will in China?

Not a big concern:

If  your assets (inside or outside of China) are not significant  than a formal will is probably not a high priority.  While it’s always a good idea to have a written will back home, ex-pats with no children or assets are best off steering clear of the Chinese legal system.  Don’t compound the worries or stress on your survivors by making your parents fly to China to pick up your iPod and organize your sweaters and sock drawer. 

Good idea:

If you have young children, then some type of formal will is probably a good idea.   God forbid both parents pass away while living in China then the children may become ward of the state until your government can step in and clear up the matter.  How long will this take?  The best of all possible solutions will be reached as quickly as humanly possible.  How long will that be?  No one can say.   Lawyers in Shanghai assure me that all the concerned parties want nothing more than to see those kids taken care of as fast and sensitively as possible.  BUT – if your intention is that your children go to live with your sister on the farm in New England and not your wife’s alcoholic father with a gambling problem, then you are best off leaving clear, formal instructions.

Having some type of formal will is basic financial common-sense, and everyone with significant assets or property should take this step.   Even if your assets are back home and you plan on leaving them to your wife, children or other family members, it’s still a great good idea to have a formal document.   

Yes, you need a will:

If you own Chinese property and fear that a Chinese local may try to claim those assets after you pass away.  Single men with girlfriends should take note.  Single men with ex-girlfriends and ex-wives should be VERY concerned.  So should anyone with Chinese business partners.  The same goes for anyone with significant off-shore investments. 

What if you need a Chinese language will?  We strongly recommend that you deal with an international law firm based here that can provide you with a bilingual document that conforms to Chinese law AND integrates with your existing estate plans. 

Obtaining an international will in China:

How do you get a will?  If your situation is complex or involves Chinese legal jurisdiction, an international law firm based in a major Chinese city is your best bet.  Make sure the translation is high-quality.  You will be reading the English, but the Chinese court system will only be concerned with the Mandarin version.

If you need a formal declaration of your intent, a simple will-kit or template will be sufficient.  These have the advantage of being inexpensive, simple and clear.  If your assets cover multiple jurisdictions (a US citizen with property in Australia and investment funds in HK), then you may need multiple wills.  Joint-wills for spouses are NOT a good idea, and many jurisdictions don’t recognize them. 

For more information or pricing on Essential Finance will kits, please contact Tatiana -Ramirez at (86 21) 6247-5755.

China based entrepreneurs – particularly the ex-pat kind – are master planners.  They are constantly reacting to changes in the market or preparing for new opportunities.  It may, therefore, come as a surprise that many of these movers and shakers are neglecting one of the most important plans of all – their own household finances. 

Many successful expat owners and entrepreneurs in China will tell you that it takes longer to create a winning model here than in other markets.  What they don’t tell you is that while they were navigating the ever-changing landscape of China’s business & regulatory environment, they were neglecting their own future. 

Delayed prosperity is one good reason for break from planning.  Another is that building a financial plan requires money and time – two things most fledgling entrepreneurs are in short supply of.  But if you’ve survived in Shanghai for more than a couple of years, there is a good chance that you are making a little money already, or soon will be.  

Here are a few ideas for entrepreneurs who are crossing the threshold from “struggling” to “growing rapidly”.  First tip – stop waiting for a flashing neon sign saying that you’ve made it.  Most successful entrepreneurs have a lot of trouble identifying the exact moment when they have “made it” – so stop waiting for tons of cash to start accumulating  behind the seat of the Benz. 

1. Hire yourself — and pay yourself.  Entrepreneurs are notorious for working long hours and taking very little out of the business.  That’s great at the beginning, but if you are planning on staying in for the long term, you are going to have to start taking care of yourself.  Here’s a financial tip that you can grow old with — after the 2nd year entrepreneurs should be paying themselves a regular salary and NOT a commission.  In other words, budget a specific amount to pay yourself on a regular basis instead of just taking special payouts after a big deal.

2. Company growth or personal comfort – the choice is yours (at least a little).  Some entrepreneurs think that business ownership is like a vow of eternal poverty.  Every extra penny has to go back into the business.  In the early days that might have been necessary – but now it may be more of a pose than a survival tactic.  Revise your business model to reflect your track record of successful sales – and to allow yourself to take a regular paycheck.

3. Cash out gradually.  One of the few silver linings from the recent stock market volatility has been the wake-up call that not every new business is going to end up a stock market favorite.  In fact, plenty of successful, profitable entrepreneurs never see their companies list on the stock exchange. The key to getting rich from a growing business is to have a plan for cashing-out gradually without the assistance of investment bankers.  One great method is simply to pay yourself more – be it in a regular salary or special bonuses – but don’t forget to invest the money into your long-term investment program.  More and more successful entrepreneurs are finding that they do what’s best for their families AND what’s best for the business by setting up their own pension fund.  The asset base of the company is preserved, but the owners and partners get the piece of mind of knowing that their long-term future is provided for.

4. Be unfair – give yourself and your key people better treatment.  It’s not all about money – business owners in China must also be adept at non-cash negotiations.  Forget the car and the villa – the perks that matter now are health care and education savings plans.  Get creative with the perks to keep your best people on the job.   Insurance makes a great top-level benefit for you and your key people, since there are often group discounts and other benefits.  Look at life insurance, medical programs and income protections (or disability) protection.
 

5. Prepare for success.  Have a plan in place.  First, be able to determine when you have hit your own definition of success.  (It sounds silly, but many entrepreneurs are more stressed-out by success than by failure.)  Next, build your own payout into your growth plans.  At the start it was cool to pay yourself last – now that’s not necessary and not a good idea.  Sit down with your lawyer, accountant and financial planner to discuss taxes, ownership structure and exit strategy.  That lean, mean, profit machine you’re building now can be a source of joy or misery in the future, depending on the choices you make now.   Remember - the tax man looks at profitable businesses much more carefully than at the bankruptcies. 

One of biggest frustrations for financial planning professionals is trying to manage SOME clients’ unrealistic expectations about risk and return.  When the bulls are running, many investors seem to believe that they are entitled to triple-digit returns.  When markets reverse those same investors cling to

By historical measures, a diversified portfolio of equities should earn in the neighborhood of 12%.  Bonds, while safer, will only return you an average of 4 – 6%.  Can brilliant stock-pickers consistently outperform the markets?  Maybe.  Occasionally we hear about Buffets and Grahams who can work magic with stocks.   Run-of-the-mill market heroes tend to get lucky once in a while and talk about their gains a lot.   Good fun when global tides are lifting all boats – but dangerous when markets are volatile and skittish.

So how do individual investors make judgments about expected returns?  Put another way, how can you discuss 2008 projections with a financial advisor?  Financial professionals use the following concepts and terms to discuss anticipated or potential returns.

Risk-Return.  As we are all finding out, many people who scored unusually high returns in 2007 were also taking unusual risks. There is a relationship between risk and return that you simply can’t escape or avoid.  You can invest without any risk whatsoever – but your returns will probably be in the 3-4% range (usually represented by the government bond rate for your region).  The investments offering huge payouts are usually a good deal riskier.  Most aggressive investments put your capital at risk.  In other words – you can lose everything you invest and suffer a loss (or in finance terms:  ‘a negative gain’).

Benchmarks.  Benchmarks are simply standards used to measure performance.  Generally we use big stock market indices (portfolios that represent an entire stock market) such as the Dow Jones Industrial Average for the US, the CAC for France and the Hang Seng index for Hong Kong.  Beware of what indices or benchmarks are being used to measure your investment performance.  The benchmark should be related to your investment target in some way.  If you are investing in small-cap shares in Asia, you might compare your portfolio to Hong Kong’s GEM index or a large mutual fund (with a 3 year track record) that focuses on companies with similar investment targets.  Beware of comparing speculative shares with conservative benchmarks!   Volatile investments may outperform stodgy indices for a while, but you are paying for it with increased risk.

Buy low – Sell high.  The Contrarian Approach.  Buy low sell high is such an accepted part of the financial vernacular that we assume it is common practice.  In fact, BL-SH is counter-intuitive and requires unusual fortitude and self-discipline.   Buying low means taking a position in investments that everyone else is afraid of.  You are alone and in opposition to common wisdom.  Likewise, selling high seems like a great idea in retrospect, but again you are moving against the crowd and bucking the trend.  A BL-SH investor would be buying on the very days that the rest of us dread looking at the financial headlines. 

Don’t blame yourself.  Don’t blame the markets.  Bear markets are part of the modern economic cycle, and awful as this one is it will turn around some day.  Will recovery be fast or slow?  No one knows.  But experienced investors know that panic and desperation are sure-fire methods for making things worse.

The bad news?  Your portfolio has probably suffered some pretty significant damage.  A classic bear market is characterized by a 20% drop – and some indices are already approaching that.  The last few weeks have been highly volatile and investments not directly related to mortgage risk or other fundamentals are being hit just as hard as unhealthy companies.

The good news – or at least the silver lining?  The entire stock market is suddenly on sale.  Companies and markets that you liked at $100 are even more attractive at $80 – provided the fundamentals haven’t changed.  What’s more, a recession can actually have a beneficial effect on certain economic problems.  Inflation (including oil prices) is ameliorated by economic slowdowns.

The reality?  The worst of news is probably mostly over.  That doesn’t mean that a bull market is upon us – we may be stuck in a ‘sideways trend’ for a while.  It does mean, however, that what is done is done.  Don’t make any sudden moves to try to save the situation.  Now is a great time to sit down to calmly, rationally plan out your future.

What can you do now:

1) Perspective and long term viewpoint. During the bull market when stocks and funds set new highs every day, it was easy to invest for the sake of investing. Now that we understand market risk a little differently, it is important to make some hard decisions about what your most important goals really are. Devote at least a portion of your funds to long term (10 years + )

2) Form a plan. If you don’t understand the difference between planning, savings and investing, then this is a great time to look into it. Financial planning is long term and puts a premium on stability and meeting specific goals. If you have been blindly following someone else’s advice, this is a great time to do a little research and develop your own knowledge base.

3) Look on the bright side. The market is on sale. Inflation is dropping. There is great potential for you to capitalize on the next big market move. It will come soon enough, so be ready.

4) Listen to experts. Everyone is a genius in the bull market. The time for insider tips and fancy advice from friends of investment banker friends is over. CFOs of Fortune 500 firms can employ hedging strategies and other sophisticated trading techniques. Household decision-makers should be focusing on stable, long term strategies that will help you retire comfortably and meet major household obligations. Personal financial planning isn’t watered down investment banking – it’s a completely separate discipline.

5) Live to fight another day. This time next month we will be looking at a very different market environment. Some cautious investors will go to cash or safer investments. Great. But if you make any rash moves that lock your funds in to stable but low-yielding instruments, you will feel pain from the sidelines of the next bull move.

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