3 Major Threats to Your Portfolio for 2012

Many financial forecasts predict tough times ahead.  With trouble in Europe, a struggling U.S. economy, and the lingering effects of the financial crisis of 2007-9 still creating problems, it is no surprise investors are quite concerned.  Do you go to cash?  Should you sell your stocks and mutual funds ?  How will you navigate these choppy waters? Now is certainly not the time to panic, but you shouldn’t “stick your head in the sand” and do nothing either.  Mapping out a game plan for 2012 is critical.  When we see a significant chance for a major downturn like today, many investors become restless or fearful and run for the hills. They sell, sell, sell!   Yet those with a solid game plan often remain patient and keep their long-term portfolio strategies in mind. St. Augustine once said, “Patience is the companion of wisdom.”  The market has certainly seen its share of ups and downs over the years, and it often discovers its own remedy. If you were around for Black Monday in 1987, you probably recall the widespread panic that followed. But you may not be aware that within two years the market had sprung back, fully regaining the value it had lost by September of 1989. Bull, Bear, Rally, or Slump? Often the media encourages investors to think in either/or terms such as bull or bear, rally or slump and euphoria or panic. There will always be another “latest headline”, and if you base your investment strategy on the headlines, the chances are you will end up confused and astray from the principles that work and truly build wealth. However we must also remain prudent and prepare ahead of time for trouble we see brewing.  There are times to be more aggressive (offense) and times to be more reserved (defense).  Today I believe is a time to be much more defensive for the year ahead based on all of our research at Faith-Based Investor . Three Major Threats There are three major threats we see for your portfolio in 2012: 1. Political risk Right now, there is a high risk right now that President Obama will get reelected. Obama believes he is doing a good job for the economy.  He believes things are heading in the right direction and he deserves another 4 years to fix this mess. He believes we need to go deeper into debt to solve our problems. He does not believe our entitlement programs in America need to be fixed. Yet, we are spending far more than we can sustain. On the other hand, Republicans don’t have the solutions either.  So we have gridlock. The political gridlock is harming our financial progress. Democrats want one thing and Republicans want another. Regardless of who is right, we need to make significant changes in the U.S. and this is not being accomplished. Even if a Republican wins the White House, we could see major budget cuts which could swing the U.S. economy back into a recession. That’s what happened when Reagan came into office. It took time before growth took hold . . . . As investors we have to be prepared for more tough times ahead regardless of who’s in the White House. 2. Possible European meltdown Nothing is solved in Europe!  The 16 other European countries are trying to bully Germany to help out the much weaker countries.  Germany is looking out for herself. Of all the solutions and fixes presented in Europe none are significant enough to contain the problems.  They are spreading faster than cancer.  The weak are getting weaker and bringing the strong down with them.  It is only a matter of time before the walls begin to crumble and fall.  There are cracks in the system yet European leaders are unwilling to take the painful steps that need to take place to solidify this major banking system.  This mess could create a global chain reaction. Europe has not fixed any of her problems and this I believe will rear its ugly head in 2012. 3. Global economic slowdown Greece and Portugal are already in a recession.  Italy and Spain are well on their way as well!  The U.S. has seen chillingly slow growth and the “king of growth” China is cooling off.  There are very few countries expanding right now.  My greatest concern right now is with China.  If they continue slowing down, it could take countries like Australia, Brazil, and Canada down for the ride.  These natural resource producers depend on China’s growth. So where do you do from here? Now is the time to take defensive measures for 2012!  In the game of football, defense wins championships it’s not the offense. We created a special report for 2012 to help investors map out a game plan for the tough road ahead. We  believe investors should consider the following four steps: 1. Avoid companies that violate your faith and values. Some of the types of companies you may wish to avoid include those involved in: The abortion industry Producing explicit entertainment and pornography Embryonic stem cell and fetal tissue research Homosexual activism Producing alcohol and tobacco The gambling industry Environmental abuse 2. Seek out those companies that complement your faith and values. This may involve finding companies: Helping the poor and defenseless Protecting the sanctity of human life Producing morally sound entertainment Finding cures for life threatening diseases Improving the society we live in 3.  Seek investments with strong financial potential. Examine the up and downside potential of every investment, look for companies with low debt, attractive valuations, growing earnings, strong management/leadership, in growing sectors of the economy (to name a few). 4.  Seek to diversify your holdings. This involves buying stocks, bonds, alternative investments like gold , silver, and oil, and cash investments. By diversifying your risk, you stand to gain peace of mind and potentially higher rates of return. The bottom line is this: 2012 should be a difficult year for investors, but you don’t have to be “left behind”.  Starting plan now before the storm hits is essential to protect and grow all that God has entrusted to you.  As it says in Luke 16:10 “”If you are faithful in little things, you will be faithful in large ones. But if you are dishonest in little things, you won’t be honest with greater responsibilities.”   Seek to honor the Lord with your finances and He may very well bless your efforts. It’s no guarantee, but I would rather place by trust in Lord and leave the results up to Him rather than going the world’s way.  How about you? What are your concerns about 2012?  Do you think it will be a good or bad year for the markets and economy?  I’d love to hear your thoughts!  Meet us in the comments! Investing image from Shutterstock Related Articles: Forex Trading 101: Major Currency Pairs, Most Traded Currencies, & More Guide To Investing: 7 Deadly Mistakes 10 Tips To Manage Your Personal 401k What Is The Best Investment For My Money During These Economic Times? Active Vs. Passive Funds | Understanding the Key Differences Stock Market Basics For New Investors Where do you get your investing advice? Jay Peroni, CFP® is author of The Faith-Based Millionaire , Chief Investment Officer at Faith-Based Investor , and host of the Rethink Wealth radio show . His life passion is helping individuals and businesses keep Christ first in the investment and financial planning process. The articles on this site are for entertainment purposes and should not be taken as financial advice. Please contact a financial professional for specific advice regarding your situation. Also, many of the CPF articles help us pay the bills by using affiliate relationships with Amazon, Google, eBay and others. 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3 Major Threats to Your Portfolio for 2012

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