Investments & Personal Insurance Solutions

How often should your Asset Allocation strategy be reviewed?

• That’s a good question. Asset Allocation is not a one step process. To work best, your asset mix should be periodically reviewed from time to time and rebalanced if necessary.
  
  Here are three of the most common reasons why changes may become necessary.
  
  First, your portfolio mix might shift as some assets outperform others. Chances are that, over time, your stock allocation will outperform your bond and cash allocations. When this occurs, your portfolio could be exposed to more risk. To bring it back into balance, stocks should be sold and additions made to the bond and cash components of your portfolio.
  
  Second, your life circumstances change. Children grow and move out of the house. You may change jobs or careers or even further alter your goals. When any of these events occur, it is wise to take a fresh look at the allocation of your assets. Rebalancing may be necessary to accommodate your changing needs.
  
  The third situation I have encountered is that your time frames change. As you move closer to a goal, your Asset Allocation should become more conservative. As you approach retirement, for example, you may want to realize gains by rebalancing your portfolio toward a more conservative mix.
  
  Changes in goals are usually the most important reason to adjust your allocation. However, taxes and market conditions can also necessitate adjustments as well.
  
  As a general rule, you should plan on sitting down with your financial advisor and review your Asset Allocation strategy at least annually or sooner if market conditions result in a significant change in your allocation.

How do Mutual & Seg. Funds help with diversifying investments?

• The best way to cushion your portfolio against short term volatility is to diversify. To divide your assets among different types of investments.
  
  Consider this: if you own one stock and it performs poorly, the impact will be great. But if you own 100 stocks and one performs poorly, the impact will be less acute. That’s the logic and benefit of diversification.
  
  Of course, most people don’t have the time, resources, or expertise to assemble a portfolio of several hundred stocks. That’s why Mutual & Segregated funds, which may hold hundreds of different securities in their portfolios, are such a practical choice for so many of my clients.

Is “Dollar Cost Averaging” a sound approach to investing?

• It’s the surest way to invest in stocks. With dollar cost averaging, you first figure out how much you can afford to stash away, then you channel that same fixed amount every month come rain or shine into your equity program. When markets go up, you can congratulate yourself for having made some paper profits. When markets go down, you figure that you’re at a bargain sale. Perhaps last month your monthly investment could only buy three units of your favorite Mutual or Segregated fund. This month it might buy four units.

Why do you recommend against trying to time the market?

• In theory, at least, market timing is a wonderful idea. The principal is a simple one. Be fully invested during rising markets, and move to safe cash equivalents when prices fall. No other investment strategy has more powerful or universal appeal.
  
  The problem is it’s virtually impossible to pull this off consistently. Almost all who try, ultimately fail, and with good reason. Market timers have the odds overwhelmingly stacked against them.
  
  Consider the market’s overall, long term trend, which has been decidedly upward. Since the turn of the century, the market has risen approximately 70% of the time. That means that if you exit the market betting it will go down, you have a 7 in 10 chance of being wrong.

Isn’t “Timing the Market” a successful strategy for investing?

• I think in the long run that prudent investing and consistency certainly pays.
  
  For example: If you had stayed invested in an index of the S & P 500 stocks for all 2,528 trading days from 1989 through 1998, your average annual return from price gains and dividends would have been 19.2%.
  
  But if you had pulled out and missed only the 10 best trading days in those 10 years, your annual return would have dropped to 14.8%.
  
  Had you missed just the 30 best days in those 10 years, your return would have fallen to only 9.4%.
  
  I think the lesson here is that it doesn’t pay to try to “time” the market, to guess what its immediate next moves will be, and then pull out or put yourself back in. I believe it’s much smarter to have a long term strategy and stick with it.

Why is a “Compounding Rate of Return” so important?

• I believe compound rates of return are one of the best friends of investors today. Albert Einstein said one of the greatest lessons he ever learned was that of compound interest. Baron Rothschild, one of Europe’s most successful bankers said, “I don’t know what the 7 wonders of the world are, but I know the eighth, "Compound Interest”.
  
  Here is a hypothetical example to illustrate a compound rate of return.
  
  Let’s assume that you could have a choice between two options. Option A would be to give you $1,000 a day for 30 days or Option B would give you a penny a day and double it every day for 30 days. If presented with this hypothetical choice, which would you choose?
  
  The answer is pretty amazing. If you choose option A, you would have $1,000 a day for 30 days or $30,000 at the end of the month. If you choose option B you would have accumulated through the magic of compound interest a whopping grand total of $10,747,418.23.
  
  What’s amazing about this number is that half way through the 30 days you would have only accumulated $327.67. This is why in addition to taking advantage of compound interest, it’s important to invest for the long term and get started early.

What effect does only 2% have on an investment program?

• For example, a person with 30 years until retirement who makes a $2,000 yearly investment that grows at six percent annually in a tax deferred account will have nearly $168,000 at retirement. An eight percent return would deliver nearly $245,000, a 10 percent average annual return would mean a nest egg of more than $361,000.
  
  This illustrates the case for maximizing one’s return and at the same time maintaining appropriate levels of risk.

What are the biggest threats to financial security?

• To safeguard your own financial future and the future of the people who matter to you, you need a strategy that builds your assets and at the same time protects them against the six big threats one needs to watch out for:
  
  Inflation – inflation erodes your buying power because prices almost always go up. Your income might not keep pace.
  
  Health Care – the cost of health care has been increasing much faster than inflation in general.
  
  Estate Taxes – Income taxes & Capital Gains tax can substantially reduce the estate you leave to your heirs.
  
  Withdrawal Penalties – You have to pay a penalty each time you take too much or too little from your retirement plans.
  
  Income Taxes – income taxes can be your single largest expense, even after you retire.
  
  Property Taxes – some places are much more expensive to live in because they have higher taxes.