MONEY stocks

What’s Next for Netflix?

Netflix Inc. Japan President Greg Peters Interview
Bloomberg via Getty Images

Netflix NETFLIX INC. NFLX -0.51% has truly taken investors on a wild ride in the past year. At this time last year, Netflix stock was approaching $500 for the first time. But by the end of 2014, shares had plummeted to nearly $300 after third-quarter subscriber growth fell short of expectations and Netflix projected domestic contribution margin growth would slow beginning in 2015.

As it turns out, this was a false alarm. Netflix’s third-quarter performance was a fluke, and growth has accelerated again both in the U.S. and abroad, making the video streamer the best-performing stock in the S&P 500 for 2015. This culminated with Netflix’s official announcement that it would implement a seven-for-one stock split this month, which briefly pushed the stock above $700 (though it has since given up some ground).

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Given the stock’s volatile history, investors have to be wondering whether Netflix’s recent success is sustainable. What does Netflix need to do to keep the stock moving higher?

International growth: promising, but still plenty of question marks
Netflix’s international expansion has attracted plenty of press coverage and investor attention lately. To some extent, this is understandable. Netflix has been rapidly adding new markets, and it surpassed 20 million international subscribers in the first quarter (up 65% year over year).

On the other hand, Netflix will continue losing money in its international markets for at least a few more years due to the rapid pace of expansion. It’s not clear what the breakeven point for Netflix’s international operations will be — other than that it will be much higher than in the U.S.

Furthermore, while the U.S. economy is in fairly good shape, Netflix might have to contend with weak macroeconomic conditions in many foreign markets for the foreseeable future. The strong dollar makes matters worse by diluting the value of Netflix’s non-dollar-denominated revenue.

It’s also hard to know at this point how profitable international markets will be in the long run. This means there’s no straightforward way to evaluate just how much the global business is worth. Netflix’s strong international subscriber growth is promising, but that’s about all that can be said with any degree of certainty.

It’s still all about the U.S.
By contrast, two aspects of Netflix’s domestic results over the next year or so could reveal much about the company’s value.

First, will domestic subscriber growth slow? A year ago, Netflix claimed that increasing the price of its most popular plan by $1 per month for new subscribers had a minimal impact on subscriber additions. A few months later, Netflix executives were talking about higher prices leading to somewhat slower growth. A few months after that, Netflix instead blamed the slowdown in growth on higher saturation of the U.S. market. And by April 2015, the slowdown looked like just a blip, as growth reaccelerated.

In short, even Netflix’s management doesn’t have a clear understanding of where the company is on the adoption curve in the U.S. A few more quarters of data won’t be decisive, but it could still bring additional clarity about Netflix’s likely future subscriber growth trajectory.

Netflix has added nearly 6 million U.S. subscribers in the past year and ended the first quarter with 41.4 million domestic subscribers. Based on those numbers, it would be shocking if Netflix couldn’t hit the bottom of its long-term U.S. subscriber target range of 60 million-90 million.

Reaching the top of the range will be much tougher. Netflix’s success in the next year will say a lot about whether it can get there, despite competition in the streaming-video space heating up.

Second, can Netflix maintain its recent track record of strong margin expansion in the U.S.? Late last year, management told investors to expect its domestic streaming contribution margin to rise by 200 basis points per year going forward.

Yet in April, Netflix reported that its domestic contribution margin had jumped by a stunning 370 basis points just in the first quarter. Netflix has publicly adhered to its standing guidance that the domestic contribution margin will reach 40% by 2020. If that starts to look overly conservative, it could mean Netflix’s long-term earnings power will be even higher than bulls currently expect.

Any more surprises?
Netflix has delivered plenty of surprises to investors in the past few years: some good and some bad. Today, investors expect so much from the company that there is probably a bigger risk of Netflix missing expectations than blowing them away.

More specifically, a sharp slowdown in domestic subscriber growth — such as what occurred in the second half of 2014 — could cause Netflix stock to fall hard. Netflix probably needs to reach the upper half of its long-term domestic subscriber target range to justify its current valuation; another growth slowdown would cast doubt on its ability to get there.

Additionally, Netflix has a large amount of expensive content in the pipeline, so slower subscriber growth could put a quick halt to its strong margin expansion trend, reducing profit growth.

Netflix investors have to hope they don’t get any surprises like this. Even strong international subscriber growth would be unlikely to make up for any problems in the domestic market.

Read next: What Netflix’s 7-For-1 Stock Split Really Means

Check back next week for a more detailed analysis of what investors should look for when Netflix reports its second-quarter earnings later this month.

Adam Levine-Weinberg has no position in any stocks mentioned.

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MONEY mutual funds

Why Over Diversifying Your Investments Is Dangerous

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Dimitri Vervitsiotis—Getty Images

Owning too many funds can make investing more complicated than it needs to be.

Do you collect mutual funds? Unlike hobbyists who collect stamps, art or rare coins, investors who own a multitude of funds are not better off.

While diversification is important to any portfolio, owning too many funds can make investing more complicated that necessary.

One of my clients owned 16 different accounts, including an array of stock and bond mutual funds. In all, he had 56 mutual fund positions. Everyone should be well-diversified, but this client had missed that mark. He had a cluttered collection of investments that didn’t serve him well.

A lot of folks are in the same situation: Their finances are a hodgepodge. Good financial advisors bring order to that mess, and adopt a common-sense strategy for the long term.

Five years ago, the client, a doctor, came to me because he wanted to retire. His portfolio was sizeable, yet he had no idea what he owned or why. “I simply don’t understand what I have,” he said. “Will I have enough cash flow in retirement?”

I told him his concern was spot-on. I helped consolidate his holdings while greatly improving his diversification.

Here’s what’s wrong with owning too many funds and other investments:

Tracking them all is difficult. You should review all your monthly statements. Following 16 accounts can be a nightmare. Rebalancing when your circumstances change or funds shift in value is a challenge. Evaluating performance is nearly impossible. Fewer funds and accounts are much easier to handle.

Duplication is common. With so many funds aggregated haphazardly with no plan, you get a lot of overlap. My client had some funds that matched his Standard & Poor’s 500 index fund, except they cost more in annual fees. There’s no sense in paying for more of the same thing.

There’s little diversification, and risk isn’t reduced. Ideally, a portfolio is sufficiently balanced so that if one asset suffers, others offset its losses. A study by Morningstar, the investment research firm, shows that owning more than four randomly selected funds decreases risk very little. Only a small difference exists between holding four funds and 30.

Figuring out where to get cash in retirement is a chore. Once retirement begins, you need to decide which accounts should provide your cash flow. Consolidated accounts made this process much easier.

In my client’s case, around 80% of his portfolio was in stocks or equity funds. His portfolio looked like that of a 30-year-old, not a 70-year-old. All that stock exposure was too risky for a man his age. You need to safeguard the value of your assets to see yourself through retirement.

We switched him to a 50%-50% split between stocks and bonds. This gave the client the ballast of a solid fixed-income allocation, and also allowed him enough stock exposure to keep his net worth growing – thus increasing his chance of leaving a substantial bequest for his heirs. Stocks’ growth usually offsets inflation, which eats away at bonds.

Before he came to us, my client was driving with no road map. In assisting him, we dramatically simplified his financial life.

As with most things, in the world of financial planning, simpler is better.

Jason Lina, CFA, CFP is Lead Advisor at Resource Planning Group Ltd. in Atlanta.

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TIME

Chinese Stock Markets Are in the Middle of an ‘Unprecedented’ Slide

A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai
Aly Song—Reuters A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai, China, June 26, 2015.

State monetary policy has failed to fix the situation, and Beijing is growing desperate

In what analysts are describing as an unprecedented economic situation, China’s stock indexes are currently tumbling into a free fall, with panic taking the place of the brash confidence that, until last month, led these markets to rapidly develop into an unsustainable bubble.

That bubble appears to have now burst: by early afternoon local time on Friday, the Shanghai Composite Index had fallen 3.25% to an anemic 3,785.57 points; in the three weeks since it reached a seven-year high, it has lost 30% of its value.

Monetary authorities in Beijing are currently grasping for straws to remedy the situation, but numerous market interventions, including the fourth cut in interest rates since November, have failed to keep investors from frantically selling their Chinese stocks.

The turbulent situation is not yet catastrophic, but it illuminates the greater volatilities of China’s fraught existential dynamic: between an autocratic Communist government and the currents of free-market capitalism. In a country where stock investors now outnumber Communist Party members, if the market heals, it will likely heal itself. Beijing’s economic policies have thus far proven mostly ineffective.

Meanwhile, state authorities are attempting to blame the economic instability on calculated “foreign forces,” the Washington Post reports. State media outlets have alleged that Morgan Stanley or prominent investor George Soros may be purposely interfering in the Chinese markets. Messages making the rounds on WeChat, the country’s preeminent messaging service, allege that “‘international capital’ — or simply capitalism itself — [is] attacking China,” according to the Post.

In the face of this supposed malfeasance, prominent figures are encouraging their fellow countrymen to have faith in their faltering economy.

“Hold stocks with confidence,” was the advice of Fan Shaoxuan, a executive at microblogging service Sina Weibo, according to the Post. “Win glory for the country even if you lose the last penny.”

MONEY financial independence

Financial Lessons of America’s Founding Fathers

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation.

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Here are some of the lessons, still applicable today, that can be drawn from these historic financial lives.

Have a Back-up Plan

Alexander Hamilton may have been the greatest financial visionary in American history. After the Revolutionary War, as Washington’s Treasury Secretary, Hamilton steered the fledgling nation out of economic turmoil, ensured the U.S. could pay back its debts, established a national bank, and set the country on a healthy economic path. But it turned out that he was far better at managing the country’s finances than his own.

When Hamilton was killed in a duel with vice president Aaron Burr, his relatives found they were broke without his government salary. Willard Sterne Randall, biographer of multiple founding fathers, recounts that Hamilton’s wife was forced to take up a collection at his funeral in order to pay for a proper burial.

What went wrong? Hamilton’s law practice had made him wealthy and a government salary paid the bills once he moved to Washington, but he also had seven children and two mistresses to support. Those expenses, in addition to his spendthrift ways, left Hamilton living from paycheck to paycheck.

The take-away: Don’t stake your family’s financial future on your current salary. The Amicable Society pioneered the first life insurance policy in 1706, well before Hamilton’s demise in 1804, and term life insurance remains an excellent way to provide for loved ones in the event of an untimely death. Also, don’t get into duels. Life insurance usually doesn’t cover those.

Diversify Your Assets

Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.

During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers. Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson in particular continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish. “Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.”

After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves). As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks. The president was so focussed on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.

Invest in What You Know

Warren Buffett’s famous piece of investing wisdom is also a major lesson of Benjamin Franklin’s path to success. After running away from home, the young Franklin started a print shop in Boston and started publishing Poor Richard’s Almanac. When Poor Richard’s became a success, Franklin reinvested in publishing.

“What he did that was smart was that he created America’s first media empire,” says Walter Isaacson, former editor of TIME magazine and author of Benjamin Franklin: An American Life. Franklin franchised his printing business to relatives and apprentices and spread them all the way from Pennsylvania to the Carolinas. He also founded the Pennsylvania Gazette, the colonies’ most popular newspaper, and published it on his own presses. In line with his principle of “doing well by doing good,” Franklin used his position as postmaster general to create the first truly national mail service. The new postal network not only provided the country with a means of communication, but also allowed Franklin wider distribution for his various print products. Isaacson says Franklin even provided his publishing affiliates with privileged mail service before ultimately giving all citizens equal access.

Franklin’s domination of the print industry paid off big time. He became America’s first self-made millionaire and was able to retire at age 42.

Don’t Try to Keep Up With the Joneses

Everyone wants to impress their friends, even America’s founders. Alexander Hamilton blew through his fortune trying to match the lifestyle of a colonial gentleman. He worked himself to the bone as a New York lawyer to still-not-quite afford the expenses incurred by Virginia aristocrats.

Similarly, Thomas Jefferson’s dedication to impressing guests with fine wines, not to mention his compulsive nest feathering (his plantation, Monticello, was in an almost constant state of renovation), made him a life-long debtor.

Once again, it was Ben Franklin who set the positive example: Franklin biographer Henry Wilson Brands, professor of history at the University of Austin, believes the inventor’s relative maturity made him immune to the type of one-upmanship that was common amongst the upper classes. By the time he entered politics in earnest, he was hardly threatened by a group of colleagues young enough to be his children. Franklin’s hard work on the way to wealth also deterred him from excessive conspicuous consumption. “Franklin, like many people who earned their money the hard way, was very careful with it,” says Brands. “He worked hard to earn his money and he wasn’t going to squander it.”

Not Good With Money? Get Some Help

In addition to being boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife Abigail was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment. “He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘Thats all well and good, but you’re making 1% on your land and I can get you 25%.'”

She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away. After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities. “If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.

As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.

Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant, and frequently stepped in at the last minute to stop a particularly ill-conceived venture. After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.

Make A Budget… And Stick To It

From a financial perspective, Thomas Jefferson was one giant cautionary tale. He spent too much, saved too little, and had no understanding of how to make money from agriculture. As Barnard history professor Herbert Sloan succinctly puts it, Jefferson “had the remarkable ability to always make the wrong decision.” To make matters worse, Jefferson’s major holdings were in land. Large estates had previously brought in considerable profits, but during his later years farmland became extremely difficult to sell. Jefferson was so destitute during one trip that he borrowed money from one of his slaves.

Yet, despite his dismal economic abilities, Jefferson also kept meticulous financial records. Year after year, he dutifully logged his earnings and expenditures. The problem? He never balanced them. When Jefferson died, his estate was essentially liquidated to pay his creditors.

 

MONEY Financial Planning

Two Founding Fathers Who Died Broke and One Who Retired Early

What can the men who adorn our currency teach us about our own finances?

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Read the full text here.

MONEY Savings

When Good Investments Are Bad for Your Retirement Savings

Q: I have an investment portfolio outside of my retirement plans. That portfolio kicks out dividend and interest income. If I roll all that passive income back into my portfolio, can I count that toward my retirement savings rate? — Scott King, Kansas City, Mo.

A: No. The interest income and dividends that your portfolio generates are part of your portfolio’s total return, says Drew Taylor, a managing director at investment advisory firm Halbert Hargrove in Long Beach, Calif. “Counting income from your portfolio as savings would be double counting.”

There are two parts to total return: capital appreciation and income. Capital appreciation is simply when your investments increase in value. For example, if a stock you invest in rises in price, then the capital you invested appreciates. The other half of the equation is income, which can come from interest paid by fixed-income investments such as bonds, or through stock dividends.

If your portfolio generates a lot income from dividends and bonds, that’s a good thing. Reinvesting it while you’re in saving mode rather than taking it as income to spend will boost your total return.

But dividends can get cut and interest rates can fluctuate, so counting those as part of your savings rate is risky. “The only reliable way to meet your savings goal is to save the money you earn,” says John C. Abusaid, president of Halbert Hargrove.

It’s understandable why you’d want to count income in your savings rate. The amount you need to save for retirement can be daunting. Financial advisers recommend saving 10% to 15% of your income annually starting in your 20s. The goal is to end up with about 10 times your final annual earnings by the time you quit working.

How much you need to put away now depends on how much you have already saved and the lifestyle you want when you are older. To get a more precise read on whether you are on track to your goals, use a retirement calculator like this one from T. Rowe Price.

It’s great that you are saving outside of your retirement plans. While 401(k)s and IRAs are the best way to save for retirement and provide a generous tax break, you are still limited in how much you can put away: $18,000 this year in a 401(k) and $5,500 for an IRA. If you’re over 50, you can put away another $6,000 in your 401(k) and $1,000 in an IRA.

That’s a lot of money. “But if you’re playing catch-up or want to live a more lavish lifestyle when you retire, you may have to do more than max out your 401(k) and IRAs,” Taylor says.

Read next: How to Prepare for the Next Market Meltdown

MONEY Greece

How Investors Should React to the Greek Crisis

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Louisa Gouliamaki—AFP/Getty Images The Greek economic crisis isn't ending anytime soon.

Step one: Don't panic.

Even from afar, it’s hard for U.S. investors to ignore the Greek economic crisis, which continues to roil global markets.

After Greece saw its bailout funds expire Tuesday—and became the first developed country to fail to pay back a loan from the International Monetary Fund—Greek prime minister Alexis Tsipras sent a letter offering concessions to European creditors in hopes that a new agreement might help the country remain afloat.

The fate of the Greek economy depends in large part on whether its government can quickly make a deal with European leaders.

One point of tension: Leaders in Germany, Greece’s biggest creditor, are insisting that the country accept additional austerity measures like pension cuts before it can get more emergency funds. Though a compromise could be reached this week, the worst case scenario is that Greece would continue to miss debt payments and, eventually, be forced out of the euro currency. Doing so would allow Greece to pursue its own fiscal and monetary policies in pursuit of economic recovery.

But what would that mean for investors around the world? The short answer, assuming you have a fairly diversified portfolio of stocks and bonds, is that it probably wouldn’t have a dramatic long-term effect.

Here’s why: If you look at the kind of target-date mutual funds that are popular compenents of many American retirement accounts, like 401(k)s—the Vanguard Target Retirement 2035, for example—about a third of their holdings are in foreign stocks. And of those foreign stocks, only a small fraction tend to be Greek companies. The Vanguard Total International Stock (which the 2035 fund holds), for example, has only about 0.07% of assets in Greek companies. So not a lot of direct impact.

The indirect impact is also likely to be muted. More than 45% of the holdings in Vanguard Total International Stock are in European countries—and if Greece leaves the Eurozone, that could affect companies and markets throughout the Continent. But some analysts are arguing that the market has already reacted, and perhaps even over-reacted, to the possibility of a so-called Grexit. “You have to assume that a substantial amount of the correction is priced in,” Lawrence McDonald, head of U.S. macro strategy at Societe Generale, recently told MarketWatch.

That being said, a note of caution ought to be sounded about the dollar. If the Greek crisis isn’t resolved quickly, it could lead to a flight to safety away from the euro and toward the U.S. dollar. The dollar’s strength has already led to sluggish profit growth in the U.S. In the past few months, the euro has rebounded a bit. But the euro could weaken again if crisis persists in Greece, putting U.S. companies that sell their goods abroad in a tough spot.

Still, even if you believe things in Greece will get worse before they get better, history suggests you’d be unwise to pull much of your money from the market right now. Though we could be in for more bad news and some painful market gyrations in the near term, keeping your money invested and sticking to your long-term strategy will likely pay off in the end—no matter what happens in Greece. Plus, there’s potentially good news for bond investors: If fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then many bond funds will do well.

MONEY stocks

How to Prepare for the Next Market Meltdown

A trader works on the floor of the New York Stock Exchange shortly before the closing bell, June 29, 2015. U.S. stocks fell sharply in heavy trading on Monday and the S&P 500 and the Dow had their worst day since October after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.
Lucas Jackson—Reuters A trader works on the floor of the New York Stock Exchange shortly before the closing bell, June 29, 2015. U.S. stocks fell sharply in heavy trading on Monday and the S&P 500 and the Dow had their worst day since October after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.

You don't need a crystal ball.

What will ignite the fuse that sets off the next big market crash? Greece, as it tries to cling to—or exit—the European currency union? China, whose economy and stock market are already showing signs of stress? Or will it be something closer to home, say, a snafu by the Federal Reserve as it attempts to unwind years of loose monetary policy?

The answer, of course, is that nobody knows. While anyone can come up with a long list of candidates that could cause the next downturn, it’s impossible to know in advance what the actual trigger will be. I’ve learned this from personal experience. Not long before the 2008 financial crisis I interviewed Richard Bookstaber, a risk expert who had just published A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation, a book in which he explains how our increasingly complex financial system is evolving beyond regulators’ ability to control—and our ability to predict its behavior.

During that interview, he ticked off a litany of problems that had the potential to topple the economy and the financial markets, including arcane financial instruments like credit swaps, emerging market funds, risky hedge funds, even overheated housing and mortgage markets. I remember thinking at the time, credit swaps, sure; emerging markets, yeah, I could see that; hedge funds, definitely. But inflated housing prices and problematic mortgages bringing the U.S. and global markets to their knees? It seems obvious today with the benefit of 20/20 hindsight. But before the financial crisis, it seemed rather far-fetched.

Fortunately, positioning your portfolio to weather the next big downturn doesn’t require that you be able to foresee when the setback will occur or what will instigate it. Rather, all you have to do is assure you have your savings invested in a mix of stocks and bonds you would be equally comfortable sticking with if the market continues to make it to higher ground—or gets whacked for a sizable loss from a development everyone anticipates or from a shock that comes completely out of the blue. In other words, it’s not as important that you be able to predict the timing or the cause of a rout as it is that you are prepared to handle the consequences.

How to Disaster-Proof Your Portfolio

The first step is to review your current holdings. Over the course of a long bull market, it’s easy to end up with a portfolio that’s more aggressive than you think. Which is why it’s important to do a quick inventory of what you own. Basically, you want to divide your investments into three broad categories—stocks, bonds, and cash—so you know what percentage each represents of your overall holdings. If you have funds that own a mix of those asset categories, such as a balanced fund or target-date retirement fund, you can plug its name or ticker symbol into Morningstar’s Instant X-Ray tool to see how it divvies up its assets.

Once you know your portfolio’s stocks-bonds mix, you want to make sure you’ll be comfortable with that mix should stock prices head south. The simplest way to do that: complete a risk tolerance-asset allocation questionnaire like the free one Vanguard offers online. After you answer 11 questions about how long you plan to keep your money invested, how you react after losses, and what kind of volatility you think you can handle, the tool will recommend a mix of stocks and bonds consistent with your answers. The tool also provides performance stats showing how the recommended mix, as well as others more conservative and more aggressive, have performed in past markets good and bad.

You can then see how that recommended mix compares with how your portfolio is actually divvied up between stocks and bonds. If there’s a significant difference—say, your portfolio consists of 80% stocks and 20% bonds and the tool suggests a 50-50 blend—you need to decide whether it makes sense to stick with your current mix or ratchet back your stock holdings. One way to do that is to calculate how both mixes would have fared during the 2008 financial crisis, when stocks lost nearly 60% of their value from the market’s 2007 high to its 2009 low and bonds gained roughly 8%. By comparing their performance, you can decide which portfolio you’d be more comfortable holding if the next downturn generates comparable losses.

Keep in mind, though, that limiting short-term setbacks isn’t your only investment objective. If it were, you could simply plow all your dough into federally insured savings accounts and CDs. If you’re investing for a retirement that’s decades away, you also need capital growth to boost the size of your nest egg. And even if you’re retired, you likely still want to have at least some of your nest egg in stocks to assure that your savings can generate income that will stand up to inflation throughout retirement. To get a sense of whether the mix you’ve decided will give you a decent shot at meeting such goals, you can plug your investments, along with information such as how much you have saved and how many years you expect to live in retirement, into a good retirement income calculator.

So let the pundits engage in their endless guessing game of when the next meltdown will occur and what incident or set of factors will precipitate it. But don’t take it too seriously. It’s ultimately a fruitless exercise, and one that could end up wreaking havoc on your portfolio if you make the mistake of actually acting on their speculation and conjecture.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

More From RealDealRetirement.com:

3 Steps To Crash-Proof Your Retirement Plan

Which Generates More Lifetime Income—Annuities or Portfolio Withdrawals?

The Best Way To Invest For Retirement Income

TIME Economy

Global Stocks Stumble As Greece Debt Troubles Escalate

Spain Greece Bailout
Andres Kudacki — AP A broker speaks on the phone as he looks at a screen at the Stock Exchange in Madrid, June 29, 2015.

The Dow Jones industrial average fell 213 points Monday amid Greece's deepening debt troubles

(NEW YORK) — Global stock markets are stumbling as investors worry about fallout from Greece’s deepening debt troubles as talks between the country and its creditors broke down over the weekend.

Greece has shuttered its banks to prevent nervous depositors from pulling their money out, and the country faces a deadline Tuesday to may a big debt payment.

The Dow Jones industrial average fell 213 points, or 1.2 percent, to 17,733 as of 11:45 a.m. Eastern time Monday.

The Standard & Poor’s 500 gave up 24 points, or 1.2 percent, to 2,076.

The Nasdaq fell 71 points, or 1.4 percent, to 5,009.

The declines were steeper in Europe. Indexes fell 3.5 percent in Germany and 3.7 percent in France.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.36 percent.

TIME Markets

Investors Are Terrified Greece’s Economy Is Falling Apart

Investors are terrified Greece is falling apart

It’s not quite panic, but it still ain’t pretty.

U.S. stocks are bracing for a bad start to the week after Greece’s debt crisis spiraled out of control at the weekend.

In pre-market trading, futures on the S&P500, the Nasdaq and the Russel 2000 are all down by 1% or more, following the lead of European markets which have taken a much harder beating as the risk of a Eurozone breakup looms afresh.

The main stock indexes in Europe fell by up to 4% across the board on opening Monday, and are down by between 2.3% and 3.9% by lunchtime (Athens’ stock market, like its banks, is shut).

On any normal day, that would be called a bloodbath in Europe, but memories of 2010 and 2012, when the Eurozone crisis peaked, are still fresh, and there seems to be a palpable sense of “well, that could have been worse.” Most markets hit their intra-day lows immediately, the main difference being the degree to which they have recovered since (Germany faring better than Italy and Spain).

True, the yields on government bonds in some of the Eurozone’s weaker countries have spiked on ‘contagion’ fears, as markets price in the risk that a Greek exit from the Eurozone would lead to a broader breakup: Italy’s 10-year yield has risen 21 basis points to 2.37%, Spain’s is up 20 basis points at 2.32%, and Portugal’s is up 31 basis points at 3.03% (a basis point is a hundredth of a percentage point).

Those are big changes, but the absolute levels are still a long way from 2012, when markets seemed on the verge of forcing all of those countries out of the Eurozone until ECB President Mario Draghi promised to do “whatever it takes” to preserve the Eurozone. Spain’s yields peaked at over 7.75%, Italy’s at over 7.5%.

Panic is still a long way away: Spain's 10-year bond yield since 2011.

“This story won’t get too out of hand unless we start to see any evidence that the Greeks are likely to vote No (at their referendum) on Sunday,” said Deutsche Bank strategist Jim Reid. “At this point the sell-off could get messy. If this doesn’t happen, the negativity may well be contained even if the story will be far from over.”

This market reaction won’t be to the liking of the Greeks, who’ll have been hoping for something stronger to underline the risks of a breakup,” said Christian Odendahl, chief economist at the Center for European Reform in London. “But it won’t be much comfort to the Europeans either, because it shows the markets are worried about what ‘Grexit’ would mean for the future of the Eurozone.”

Away from Europe, there is more nasty mood music coming from China, where the Shanghai market continued to unravel despite a cut in interest rates and reserve requirements from the central bank at the weekend. The Shanghai Composite closed down 3.3% after a 7.4% shellacking on Friday, amid reports that the army of retail punters who had driven the market up 150% since July are struggling to meet ‘margin’ calls on leveraged accounts.

Amid the carnage, investors looked for the safe haven of the dollar, as usual, but its rally early Monday has also now largely unwound. The euro is trading at $1.1118, down less than a cent from its close on Friday. Meanwhile, in the commodities markets, crude oil futures hit their lowest in three weeks on fears that financial market volatility could again hit global growth and, consequently, energy demand. By 0900 ET, they were at $58.61 a barrel, down around a dollar from late Friday.

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