Why U.S. Investors Should be Concerned About the Fallout from Japan

The disaster in Japan and devastating human tragedy is something that should concern all world citizens.  U.S. investors should be particularly concerned about whether their investment portfolios are properly designed to weather the shock to the financial system and are designed to fulfill their investment goals despite the tragedy.

As we have seen with other shocking world events such as September 11, Katrina, the BP oil spill and the 2008 financial crisis, an investment portfolio can be decimated as the result of an external event unrelated to the stocks and bonds comprising the portfolio.  It is essential that investors, particularly those who are retired and conservative, have a portfolio that is properly allocated among different asset classes (stocks, bonds, cash, etc.) to recover from any market shock such as the one we have seen with Japan and the other crises.

Undoubtedly, virtually every investor’s portfolio declined at least in the short term from these various crises and some have never recovered.  If an investor has a portfolio too heavily weighted in risky assets such as technology or financial stocks, there is likely to be an inordinately large loss suffered during a crisis.  If an investor has a large margin balance, he or she may be forced to sell out positions at the worst possible time and lose the opportunity to wait out a recovery.

We have learned from Wall Street’s conduct during these crises, particularly the 2008 financial crisis, that Wall Street only looks out for their own interests, particularly generating fees and commissions.  Investors need to be wary of this and to make sure they understand what is in their portfolio and what risks they face from a world event.  A properly balanced portfolio will likely spring back to a fair value after a crisis recedes, but an inappropriately allocated portfolio will likely not.

Investors also need to be wary of “flavor of the month” sales presentations likely to come from brokers pitching alternative energy and “safe energy” sources and commodity plays during this crisis. It is common for scam artists to surface after a crisis. For example, in the middle of the BP oil spill crisis, the Securities and Exchange Commission alerted individuals and small businesses about potential investment frauds targeting those who receive lump sum payouts from BP.

A normal person doesn’t think that in a time of crisis, you rip someone off, take advantage of them. But that’s what scam artists do. The SEC said that scam artists may target victims with oil spill-related investment opportunities that promise high returns with little or no risk, or involve secretive or complex strategies. Members of religious or ethnic communities, professional organizations or other close-knit affinity groups were prime targets for these scams because of the high level of trust that often exists within these groups and their tendency to freely share information with one another.

So, be on your guard for “too good to be true” investment pitches. The best advice for investors is to do their homework, make sure their portfolio is consistent with their investment objectives and to be skeptical of broker pitches during a crisis.

About Jacob H. Zamansky 57 Articles

Jacob (”Jake”) H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.

Mr. Zamansky was at the forefront of recent efforts to “clean up” Wall Street. In 2001, he successfully sued former Merrill Lynch analyst Henry Blodget on behalf of a New York pediatrician misled by Blodget’s stock research. The case’s successful resolution was the catalyst for New York Attorney General Elliot Spitzer to investigate the conflicts of interest on Wall Street and resulted in the well-reported $1.4 billion Global Settlement, which included many of the biggest names on Wall Street.

More recently, Mr. Zamansky is one of the leading litigators and opinion leaders of the subprime mortgage crisis and the related hedge fund collapses, representing both investors and mortgage borrowers who were defrauded by Wall Street firms and mortgage lenders. Among Mr. Zamansky’s early actions is filing the first arbitration case on behalf of institutional and high net worth investors against Bear Stearns Asset Management with regard to the two hedge funds which collapsed as a result of exposure to subprime mortgage backed securities. He also has filed claims on behalf of individual investors victimized by brokers that steered their portfolios into unsuitable subprime stocks and mortgage borrowers who were fraudulently coerced into inappropriate mortgage and investment transactions.

Earlier in his career, Mr. Zamansky worked for more than 30 years as a litigator, including positions at Skadden Arps, Slate, Meagher and Flom LLP. His tenure also included serving as a federal prosecutor with the Federal Trade Commission.

A native of Philadelphia, Mr. Zamansky has been a frequent expert commentator on CNBC, CNN, and FOX News and has published opinion pieces in The Wall Street Journal, Financial Times and USA Today. He is regularly quoted and his cases have been chronicled in major financial and news publications including The New York Times, USA Today, The Washington Post, BusinessWeek, Fortune and Forbes. He is a frequent lecturer for industry and legal groups around the country. He also writes a blog that can be viewed here.

Visit: Zamansky & Associates

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