“Investors face risks never before experienced. Safety Net is a compelling and comprehensible book that investors fail to read at their peril.” —Arthur Levitt, longest serving chairman of the SEC
The Strategy for De-Risking Your Investments in a Time of Turbulence
By James K. Glassman
The investing environment has been radically transformed. Not only did the financial crisis of 2008 come close to being another Great Depression, but one event after another has left investors rattled: the flash crash of 2010, the European debt crisis, concerns about the viability of America’s financial foundation, the BP oil blowout, and the list goes on. We are in a world of extreme volatility in which the individual investor has to build the financial equivalent of a levee to withstand category 5 hurricanes. Yet there still must be the growth that will secure a solid financial future.
James K. Glassman has been writing about investing and the economy since the mid-1970s, and his new book, SAFETY NET: The Strategy for De-Risking Your Investments in a Time of Turbulence (Crown Business; February 22, 2011), offers a clear cut strategy for achieving solid financial gain despite the uncertain financial climate. Co-author of the bestselling Dow 36,000, Glassman still bears the scars from running with the bullish enthusiasts of the 1990s bull market. But Glassman points to the famous words of economic great John Maynard Keynes, “When the facts change, I change my mind. What do you do, sir?”, and says the first step to building wealth now is to “stop insisting that the old rules apply.”
Therefore, how to simultaneously attain reasonable gains and have real security is the mission Jim Glassman has undertaken in SAFETY NET. Despite fear about the future financial environment, investors can’t keep their money under the equivalent of a mattress by stuffing it in super-safe money market funds. Instead, Glassman’s SAFETY NET gives investors a margin of safety. They achieve a trade-off that gives up a few percentage points of growth on the upside for more protection against massive losses on the downside so that they never again go through the financial nightmares of recent years. While the gains are more modest, there will be a lot less pain if things go south again.
In this highly practical book, Glassman shows investors how to reduce risk and rebuild a nest egg by allocating assets that limit ownership of U.S. stocks and focus only on those that pay dividends; increasing ownership of stocks of aspiring nations (e.g. Brazil and China); building a portfolio with a significant dose of U.S. government and corporate bonds and cash; hedging against decline by owning a bear fund that shorts the U.S. economy; and protecting against the potential declining value of the U.S. dollar by owning funds based on other currencies.
SAFETY NET also looks at:
* Specific stock, bond and fund recommendations and sample portfolios to help guide the individual investor through the financial storms that lie ahead.
* The most important element in the margin of safety plan—asset allocation. By showing how to “stress test” a portfolio, Glassman demonstrates how to allocate a percentage of stocks and bonds depending on the time horizon til retirement.
* The five principles and 18 rules of Glassman’s new rulebook. These will help keep “animal spirits” in check when fads and news flashes provide the temptation to make rash investing decisions.
While no one could have predicted the catastrophic losses of the 2000s, Glassman surmises that the lack of diversification contributed heavily to the overall damage; though it hurt some more than others—consider the victims of the Enron and Madoff scandals, or the tech and housing bubble bursts, who had “put all their eggs in one basket.” Looking ahead, he advocates defensive investing, with diversification being the key. Glassman quotes Harvard economist John Y. Campbell, who concluded that for a portfolio to achieve roughly the same volatility as the market as a whole, it needs to contain about fifty stocks, spread out among different sectors.
Ultimately, Glassman predicts the market will grow increasingly uncertain, subject to standard market volatility and an increasing incidence of “black swans”—sudden and unpredictable events. SAFETY NET offers gun-shy investors a step-by-step plan for re-entering the market, re-building their nest egg, and reducing risk. It provides a buffer against the vagaries of the market and the mistakes investors will inevitably make. Glassman likens the investing game to a marathon; with careful, cautious planning, smart investors can amass wealth over time.
JAMES K. GLASSMAN has been writing about investing and the economy since the mid-1970s. From 1993 to 2004, he wrote a popular weekly column on investing for the Washington Post that appeared in many other newspapers, including the International Herald Tribune and the New York Daily News. He was also the first investing columnist for Reader’s Digest and now writes a monthly column for the most conservative and circumspect personal finance magazine, Kiplinger’s Personal Finance. He is the executive director of the George W. Bush Institute, the nonpartisan think tank affiliated with the George W. Bush Presidential Center. Glassman is also the host of Ideas in Action, broadcast on over 100 public television stations. He is also regular guest on Larry Kudlow’s show on CNBC, and frequently appears on CNN and Fox News.
SAFETY NET by James K. Glassman
On-sale: February 22, 2011; Hardcover; 208 pages ISBN: 978-0-307-59126-5; Price: $23.00
Also available as an eBook
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