As we deal with one of the worst economic periods in our nation’s history, what are the lessons to be learned?  Are there steps we can take to insulate ourselves from future shocks to our wealth? While we all understand that our economy and markets are cyclical, our continual failure to address overheating of certain market sectors (most recently housing) ultimately creates serious problems.

The first step is to make a commitment to savings. What many Americans may have forgotten in the “age of the consumer” is that savings buffer downturns and provide a sense of security during personal and global economic shocks. Statistics show that we are now beginning to see repair of personal as well as business balance sheets, where cash plays a much more important role.

 The next step we can take is to diversify our investment portfolios to make sure we are not over concentrated in any one asset class. Many of us may have too much exposure to real estate or stocks during the current downturn and would have benefited from allocations to cash, bonds, and other tangible assets.

 Finally, we all need to educate ourselves and take personal responsibility for our financial lives. We need to know the questions to ask our advisors in order to understand the true financial risk of any investment. If it’s too good to be true – it is!

In this series, I hope to help with those questions.

S. Grimm

Next: “How to Get Back on Track”