Naked and Afraid August 2014 I caught an interesting show on the Discovery Channel this past weekend In This Letter which had an interesting concept. The program took a man and woman, Rules to Avoid a Financial stripped them of everything except a knife and fire starter, and placed Drought or Ruin them in an extreme wilderness survival situation. This “survival-of-the- fittest” premise is designed to see if people can survive, on their own, for a full 21 days. These survivalists study and prepare beforehand so they Contact Us have some skills such as hunting, tent building, and fire starting. In spite http://www.johansonfinancial.com of all their training and preparation, it seems something always happens [email protected] that catches them by surprise. A substantial portion of the show is dedicated to the survivalists’ top priority – securing clean, fresh water. Surviving in the wilderness is impossible without hydrating your body. It is fascinating to see what lengths people go to obtain water. Moses, Jesus, and Mahatma Gandhi survived weeks without food, but water is a different story. It is said the maximum time an individual can go without water is a week. Water acts as a lubricant for our joints, regulates body temperature through sweating and respiration, and helps us flush waste. The survival of our organs depends on the adequate intake of water. “When there is a shortage, it becomes incumbent on all of us to think of the future and plan for troubled times.” Our State is in the midst of a drought. As I live close to a golf course and lake, I notice the effects of this dire situation daily. The lake near our house is being drained for more important usage. The water from the lakes and ponds on the course are being used for irrigation. Personally, I have taken steps to decrease the water usage in my own household. For example, I no longer brush my teeth with the water faucet endlessly running. When there is a shortage, it becomes incumbent on all of us to think of the future and plan for troubled times. It is imperative to treat our financial planning and cash flow needs with the same care. Rules to avoid a financial drought or ruin might include: 1) Be fiscally conservative; budget and live within our means. 2) Borrowing money for assets that appreciate can be a good investment, but don’t borrow what may become too difficult to pay back. The worst place in the world to live is just beyond your means. 3) Always save and invest in your future for financial droughts to come. Economic Update Yesterday, July 31, 2014, the S&P 500 posted its worst decline since April, down 2% for the day. All in all, the stock market was down 1.5% in the month of July. Is the economy deteriorating or improving? Is the stock market rally of five plus years headed for a pause? Hmm… Almost half of the S&P 500 companies have now reported second quarter earnings and results have generally beaten expectations. Thus far, 75% of companies have exceeded growth expectations by an average of 6%. The U.S. gross domestic product expanded at 4% for the second quarter. The growth was much better than most analysts thought. Unemployment claims fell to 284,000 which was the lowest level since 2006. Interest rates remain low. Consumer sentiment has been improving along with home prices, employment opportunities, and a stock market rally that has now lasted 5-6 years. Following this great stock market run, we think we are overdue for a stock market correction. Absent a sharp increase in bond yields or rising expectations of an imminent Fed rate hike, the risks of a sustained pullback may be quite low. With that said, most market corrections do come as a surprise that no one, including myself, can foresee. Several bearish forecasters sound the warning cry. They are usually correct at some point. Most of them have missed a great run-up in the markets. Jumping out of the market because you’re convinced that you found the sell signal that marks the beginning of the end is a great way to maximize your chances of failing to meet your long-term investment goals. There will be a 10% correction at some point. There always has been. There always will be. It is simply not useful to make short-term scares rule your long-term goals. This decline has been predicted for at least 45 months. Let it come. We should not be thinking short-term but looking out for the next 10-20 years to lead us through any economic cycles. The stock market rally we have been engaged in has been largely under appreciated. The entire rally has been characterized by a failure of all the horrible things that were supposed to happen that never came to pass. We hope you are enjoying your summer. Please give us a call if there is anything we can do for you or your family and friends. .