Thoughts on Japan

The full extent of the damage and loss from the recent tragedy in Japan – earthquakes, a tsunami, rescue efforts, nuclear emergencies – is still unknown. The loss of lives and property is enormous, and the events concerning the nuclear reactors are still unfolding. It is too early to fully quantify long-range implications for Japan's economy. While our hearts go out to those suffering through this tragedy, our thoughts also turn inward as we try and assess the impact these events will have on the global economy and our investment portfolios. Let me try and address several issues we are examining.

Help

For those inclined to lend financial support for rescue and recovery efforts,  here are several reputable agencies that are directly involved:

The International Rescue Committee

Americares

UNICEF

Global Giving

Preparation

This tragedy brings front and center the fact that we all exposed to some risk of devastating tragedy, whether natural or man-made. The probability may be minuscule but the potential damage is great, and for that we must prepare. Please consider the following:

  • Review and update your property and casualty coverage to make sure your coverage is sufficient not only for likely perils but also earthquake and flood.
  •  Make sure your family has an up to date emergency plan. There are excellent resources on how and why here and here.
  •  We have all gotten used to the convenience and speed of ATM machines, ACH payments, and wire transfers. Keep in mind however that stock exchanges may close at times of national tragedy and cash held in brokerage accounts may not be available when you need it. Make sure you have some cash at a bank with a local branch with ATM access.

Investments

While the impact upon our investments is secondary to the human tragedy, it is a concern none the less. Upheavals such as this are inevitable and investors must be prepared. This underscores the importance of broad diversification and the appropriate time horizon of investments.

 Roughly speaking, a CWM balanced portfolio designed for an accredited investor (approximately 45% stocks, 30% bonds, and 25% alternatives) has 3% direct exposure to Japan. In the context of this diversification, we can easily absorb an 11% single day decline that the Japanese stock market experienced on Tuesday. (The Japanese equity market recovered almost half of this decline during its Wednesday session.)

 The events in Japan may have broader implications for global markets beyond this short-term volatility. We are assessing those in the context of our investment portfolios and may find that adjustments are warranted. We will keep you informed if and when those changes are made.

Posted by Jay Healy at 9:15 AM
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