The global economy has just experienced the broadest recession in decades. This has polarized investors into two groups. Usually most investors are middle of the road when it comes to risk tolerance, depending on their investment objectives and timelines. However when we go through extreme swings like we have just experienced, some develop an irrational fear of the markets and others an overly opportunistic view.

With some economic indicators starting to show signs that certain parts of the world are coming off life support, some investors are looking at how they can participate in the recovery. Markets after a significant market decline like we just experienced can offer exceptional opportunities. That coupled with a historically large amount of cash on the sidelines waiting to get back into the markets provides some optimism. The key is to invest while prices are low. Before taking any action to change your financial plan or jump into the markets, it’s important that you speak to an expert to make sure any investments are appropriate based on your long-term retirement needs.

If you are looking at retirement within the next 10 years you have lived through the tech bust of 2000, 9/11 and the current credit crisis. You are more sensitive to the risks of investing, especially since losing capital just prior to or as you’re starting retirement can potentially derail your plans. The usual safe havens, such as treasury bills and guaranteed investments in your bank, are offering historically low returns and are subject to higher levels of taxation. These types of investments risk losing significant buying power especially over the long run if higher rates of inflation return.

For those that have over 10 years to retirement and have a moderate or higher tolerance for risk there are a number of investment opportunities to consider. Keeping balance though is still important to ensure the investments are appropriate for your goals. Many analysts look at the emerging market economies as well positioned to take advantage of a renewal in global growth. They also see small-mid cap companies have potential to do well. They usually drop further in market declines than larger companies, but often outperform during recovery as they are seen to be able to react quicker to opportunities in the marketplace.

A balanced approach to investing is still the way to both mitigate your aversion to risk and protect your savings from the ravishes of inflation. The best way is still to have a financial expert help you understand the numerous investment products and strategies that are out there.

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November 17, 2009