Thinking Ahead Of The Curve

Right now it is incredibly difficult to look much beyond the current tumult in financial markets. My mood swings are lock-step in-synch with the markets, feeling the emotional uplift of hope when the market appears to be finding bottom to be replaced the next day with that awful nauseous feeling in the pit of my stomach as it makes a new low.

I tell myself to move on, but often find my self locked to the tick by tick market movements with my mouth hanging agape in awe of the violence that I am witnessing: de-leveraging, hedge-fund liquidation, mutual fund redemptions.

The "curve" represents what we know now: we are in for a significant economic down-turn led by a consumer spending slowdown, assisted by a fall in house values, tighter lending standards and a likely increase in the number of unemployed (as businesses adjust).

Thinking ahead of the curve is what we must do now to give us the advantage when the turn-around comes.

I just spent some time working through a clients cash-flow needs for the next year. As we were nearing the final stages she turned to me and said: "what a scary experience! But now I feel so much better knowing what to expect."
We took some uncertainty out of the equation.

Forward thinking helps to put us in a mindset that prepares us for the future. We won't be able to be exact, but we have a good idea based on history, which allows us to be proactive and not reactive (which is how we are forced to act when we are unprepared).

How do we prepare?

From an investment perspective there are great companies that have just gone on sale. The great money managers are sifting through them to find value because in six months to a year, these companies share prices will be up in the vicinity of 50% or more from where they are today (that is why Warren Buffett is buying).

But Wealth Management is more than just investment management.

If you own your own business, you have to forecast sales, forecast costs and ensure that the the differences will be positive for profitability. Otherwise you have to make some adjustments. If economic variables are going to impact either of the key inputs (ie. falling sales / rising costs), anticipation of the impact will allow time to prepare your business to meet the challenges.

Similarly, it is essential to understand your future personal income and cash flow needs that may be impacted by a changing economy.

Thinking ahead, you may forsee business profitability slipping, forcing you to be able draw less income. You will have to make some strategic adjustments to your lifestyle in advance to ensure that you have your priority cash flow needs looked after.

Where are the tax opportunities? Tax-loss selling perhaps (against future capital gains). Are your tax advisor and investment advisor coordinating their efforts to take advantage of your portfolio to ensure that in the future you can minimize taxes? Is it a good time to create family trusts and reduce future tax liability?

Have you addressed future risk: to your life, health and ability to work? what is the ultimate impact on your family if you or your spouse were unable to run the business?

Hindsight, they say is 20/20 (everybody has it). How much foresight do you have?
Think ahead of the curve...make a plan.
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