Investment Management Coach

Investments – 7 Tips to Move Forward in 2010

December 21, 2009 · Leave a Comment

Investments – 7 Tips to Move Forward in 2010 an Audio Interview

RitaJanaky12-3-09_Pt1  Appoximately 23 minutes.

RitaJanaky12-3-09_Pt2 Approximately 25 minutes

I recently had the privilege to be interviewed by Laura Benjamin, (Laurabenjamin.com) a Colorado communication consultant, business and career coach, and strategic planning facilitator.  The discussion, Part 1 and 2, focused on how we may begin to recover from the two bear markets that have destroyed value in so many portfolios, leaving investors worried about their future. 

Summary

The bear markets of 2000-2002 (stocks lost 33%) and 2008 (stocks lost 37%) have reduced portfolio values in IRAs, 401ks, and personal accounts.  There’s a lot of fear around what to do now, especially for retirees or soon-to-be retirees.  Should they continue to own stocks? Or if they sold, should they get back in?  Maybe they should invest only in bonds and avoid the stock market all together? 

Fortunately the stock market has roared back since its low in March, but we’re still well below the highs of 2007.

I think there are some fundamental decisions to revisit as well as some investing ideas to think about as we move beyond today and plan for tomorrow.

1.  Determine your investment horizon.

 An important question for each person to ask is, “How long do I need my money to last?”  In other words, estimate your life expectancy by considering your current health and the longevity of your parents and grandparents. Don’t make the mistake of thinking only of the years up to your retirement age, because you need your assets to last your life time. 

The Census Bureau currently published life expectancy for men to be 75 years of age and women 80.  If you are 50 with a desire to retire at 65 but you expect to live until your 85, you plan for 35 years.  That’s a long time.  You will likely be more willing and able to take more risk by investing a larger portion of your money in stocks when you’re 50, but even at 65 there is still 20 years left to plan for.    

2.  Be diversified in both stock and bond markets, including those outside of the U.S.

Stocks have performed better than bonds over the long-term.  As one example, we can look at the past 10 years, which included 2 bear (declining) markets, and compare it to the past 20 years.

The short view: $10,000 invested on January 1, 2000 with all dividends and interest reinvested.

On October 31, 2009, almost 10 years later…

100% invested in stocks (S&P 500 index) worth $8,400 (drop in value of 16%)

100% Bond portfolio (Barclay Capital U.S. Aggregate Index) worth $18,500 (increase in value of 85%)

A longer view: $10,000 invested on January 1, 1990

On October 31, 2009, almost 20 years later…

100% in Stocks worth $45,000 (350% increase in value)

100% in Bonds worth $39,000 (290% increase in value)

The idea is that over longer periods of time, stocks have provided greater returns than bonds.  So, if you are investing for ten years or longer, it is reasonable to consider investing some portion of your portfolio in stocks. 

A 50% stock, 50% bond portfolio

A portfolio invested 50% in U.S. stocks and 50% in U.S. bonds, rebalanced each year back to those percentages would have increased from $10,000 on Jan. 1, 1990 to 46,000 on Oct. 31, 2009.  That beat the 100% stock portfolio by $1,000 with a lot less risk.

The closer one gets to retirement and the years in which they will need to withdraw money from their portfolio, the general rule is to reduce the portion invested in stocks and increase the portion invested in bonds and cash. 

3.  Invest in dividend paying stocks and shorter-term bonds.  Returns from dividend paying stocks and interest payments from bonds provide ongoing cash that make up a portion of the total return investors receive.  The dividends and interest provide more certainty than capital gains, which are the changes in security prices.  Securities to consider: utility stocks, preferred stocks, and bonds with short to intermediate duration.

 4.  Consider your other assets when deciding where to invest your money.  For instance, if you own a business you already have exposure to small company risk.  You may want to reduce or eliminate the amount of money you invest in small cap stocks.

Or, if you own commercial real estate or residential income properties, it may be best to avoid buying a fund that increases your exposure to that asset class.

5.  If you are retired be realistic in how much you can spend. 

-         The 4% rule:   Spend 4% of your portfolio each year.  $500,000 portfolio relates to $20,000 available from the portfolio.  If your money is in an IRA or pension plan that is taxed when you withdraw it, then the net amount available with be less than $20,000 after taxes.

-         Spend more when the markets are up; reduce spending when the portfolio is under stress.

6.      Costs do matter.  They reduce returns.  Costs include sales charges such as front-end loads on mutual funds, internal management expenses, and commissions.  The average mutual fund cost is about 1.5% (1 ½ %).  For broad diversification at a low cost, consider index mutual funds or exchange traded funds (ETFs), which are similar to index funds but trade like a stock.  Expenses average .25% (1/4 %) plus ETFs are charged a commission for each trade.  If you know what you want to buy or sell, use a discount broker rather than a full service broker to make your trades.  For more on this topic go to my blog post, How do Investment Advisors and Stockbrokers Get Paid?

7.  If you want to hire an advisor, know what you want that person to do for you.  For example:

If you want someone to create a financial plan, then hire a person who specializes in financial planning. 

If you want investment advice, hire an investment advisor with the appropriate education and experience to manage your money.  You will greatly reduce the risk of being a victim of a scam if  there is a 3rd party custodian, i.e. a company other than your advisor’s firm, that holds your investments and issues statements in addition to those produced by your advisor.

In summary,

-         Invest your money in the U.S. and in foreign markets.  Be diversified, keep costs low, and consider your time horizon to be your life expectancy.

-         Take a realistic view of your current financial situation.  Reduce expenses by deciding what you need versus what would be nice to have.

→ Leave a CommentCategories: asset allocation · bonds · investment fees · investments · life changing events · retirement · risk tolerance
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Holiday Spending On The Rise

November 19, 2009 · Leave a Comment

“Christmas is the season when you buy this year’s gifts with next year’s money.” Author Unknown

Credit card debt is not my typical subject, but at this time of year we all need a friendly reminder of the shadow that may fall over our new year if we use credit cards to make our Christmas bright. 

Those darn credit cards are a persistent tug, calling our name when we open a wallet, waving for attention when we stand with furrowed brow trying to decide whether to buy now or wait for a sale.  They become the means to bring joy to those we love, or shock and awe to those we want to impress.

 But whoa, credit card debt already started increasing in October, after eight months of declining balances. (Marketwatch, “Credit-card Balances Move Higher)

Christmas buying is likely part of the reason, but the need for food and necessities in households experiencing unemployment or combining credit card balances to eliminate high interest rate cards may also be playing into the October statistics.  

 The economy needs consumers to spend, but let’s be wise during this holiday season.  My family decided to exchange names with a set dollar limit to be spent.  Faced with student loans, job uncertainties, travel costs, and families of their own, it just made sense.  For extra fun, you can invite guests to bring a $10 wrapped gift.  Each person draws a number.  #1 picks first, selects and opens a gift.  #2 picks second and can opt to open that gift or take #1’s opened gift.  Variations of this idea abound. The idea is to reduce the stress, increase the fun, and enjoy each other’s company.

 Gifts of a hug, a kiss, a plate of cookies, a compliment, a friendly smile, and the words “I love you” are priceless.  May you receive as much as you give during this Holiday Season.

 ”May Peace be your gift at Christmas and your blessing all year through!” Author Unknown

→ Leave a CommentCategories: Women Financial Management · life changing events

Passive Investing: The Choice of More Investors

November 5, 2009 · Leave a Comment

Passive generally refers to investing in index mutual funds or exchange traded funds rather than active managed mutual funds.  The rivalry between the approaches has raged for years, but evidence is mounting for passive funds.  And investors are listening.

In 1999, $12 billion of exchange traded funds (ETFs) were issued.  Net issuance of ETF shares rose to $177 billion in 2008.  From year end 1998 through 2008 ETFs issued $661 billion in new shares.   The rise in demand came from both institutional and individual investors, according to the Investment Company Fact Book. (www.ici.org) 

Why the passive approach?

Passive investment vehicles include index mutual funds and exchange traded funds (ETFs).  Both track the performance of a basket of securities included in an index.

For instance, the Russell 3000 Index measures the performance of the broad U.S. equity market.  The Ishares Russell 3000 Fund (IWV) is an exchange traded fund that holds a representative sampling of the securities in the Russell 3000 index.  The sample has an investment profile similar to the index, and may or may not include all of the securities that are included in the index.

As of 10/31/2009 the Russell 3000 index included 2,968 securities.  The Russell 3000 Fund (IWV) held 2,964 of the securities included in the Russell 3000 index. (source:Morningstar)

An index does not invest in the securities, it simply tracks their performance.  Therefore there are no fees included in the index returns. 

Funds, however, invest in the securities and the performance is reduced by transaction costs and other ongoing costs, such as management fees and other fund expenses. The net annual expenses, ongoing costs, for the Russell 3000 Fund are .20% (1/5 of 1%), according to the 2009 annual report.

A fundamental reason investors choose a passive approach is because they are aware that the majority of actively managed mutual funds are not able to out perform their benchmark index over an extended period of time.  The high expenses associated with active management such as transaction and ongoing costs,  reduces the fund’s performance by an average of about 1.5% per year, according to http://www.icifactbook.org/fb_sec5.html

That means if the index posts an 8% return, the average active managed fund would have to achieve a 9.5% return in order to net 8% after costs. If the fund’s returns are less than 9.5%,  it under performs the index. 

Relatively efficient pricing of stocks and bonds along with costs associated with active management makes beating the index a daunting task.  According to a Standard and Poors study, Indices Versus Active Funds Scorecard, Year End 2008, less than 50% of active managers beat their indices over a 5-year period.

An analysis of two – five-year periods of performance; 2004 to 2008 and 1999 to 2003 revealed the following for…

…Large-Cap Active Managed Funds: 72% under performed their S&P 500 index in 2003 to 2008 period, 53 % under performed in 1999 to 2003. 

…Mid-Cap Active Managed Funds: 79% under performed the S&P MidCap 400 benchmark in 2004 to 2008 period, and 91% under performed in 1999 to 2003.

…Small-Cap Active Managed Funds: 86% under performed the S&P SmallCap 600 benchmark in the 2004 to 2008 period, 69% under performed in 1999 to 2003.

According to the study, one consistent investment myth has been that active managers have an advantage in bear markets due to the ability to move quickly into cash or defensive securities.  The study analyzed the performance of active managers during the past two bear markets, 2008 and 2000-2002.   The report illustrated over 50% of the active Large-Cap funds under performed their benchmark, over 70% of the Mid-Cap and Small-Cap funds under performed their respective indices. 

The under performance of active managed international equities and bond funds were similar to U.S.  stock funds. 

To view this study you may have to copy and paste this url  http://www2.standardandpoors.com/spf/pdf/index/SPIVA_Rerpot_Year-End_2008 

In conclusion

Exchange Traded Funds and Index Funds offer low cost ownership of both stocks and bonds.  The high cost of active management is one stumbling block that is difficult to overcome for most active managed funds.  Even in bear markets, the majority of active managers fail to beat their benchmark index.

Golden Hills Financial Group is an independent investment advisory firm utilizing exchange traded funds and index funds in portfolio construction.

→ Leave a CommentCategories: asset allocation · fees · investment fees · investments

Wisdom Comes From Experience; Stock Market Lessons in 2009

October 2, 2009 · Leave a Comment

It’s been a tough year for investors in the stock market.  The good news is that U.S. stocks have gained 60% since the market lows of early March, recovering many of the losses from prior months. 

If you held stocks outside the U.S., in particular those of emerging markets like Brazil, Russia, and India, your portfolio would have received an extra shot of positive returns.  The emerging markets index returned more than 60% as of Sept. 30 compared to 19% for the S&P 500. 

The rapid fall of stock markets, followed by the big bounce off the bottom, offers three lessons: 

1. Know the level of risk you can tolerate for the long haul, and allocate a reasonable portion of your portfolio to risky stocks.

Stocks do not rise indefinitely.  Bull markets end, sometimes spiraling downward in a rapid decline.    Investors over-allocated to stocks who bailed out the end of 2008 aren’t likely to recover their losses for a long time.

2. Rebalance to established weights of stocks and bonds, (real estate and other asset classes, too) on an as-needed basis to avoid ‘stock creep’; an increase in the allocation to stocks that is greater than your intended amount.

It’s almost impossible, if not completely impossible, to know with certainty when the markets are going to change direction.  It may be true that when a bull market is underway rebalancing reduces the portfolio’s return, but if stocks make a quick about turn, a rebalanced portfolio will experience less value destruction.

3. Diversifying a portfolio reduces volatility.  U.S. and foreign stocks and bonds combine to offer downside protection.  Generally when one asset class zigs, the other zags. 

During the 4th quarter of 2008, the S&P 500 lost over 20%.  The U.S. bond market was up over 5%.  A $100,000 stock portfolio would have lost $20,000.  A portfolio with 60% allocated to stocks and 40% to bonds would have declined by $10,000.  But that’s not the end of the story.  The return needed to build the portfolio from $80,000 to $100,000 is 25% while the 60/40 portfolio needs only to gain 11% to be made whole.

2009 Index Returns

Index Sep-09 QTD YTD Description
DJIA

2.43%

15.82%

13.49%

 Large-cap stocks
S&P 500

3.73%

15.61%

19.26%

 Large-cap stocks
Russell 1000 Growth

4.25%

13.97%

27.11%

 Large-cap growth stocks
Russell 1000 Value

3.86%

18.24%

14.85%

 Large-cap value stocks
Russell 2000 Growth

6.57%

15.95%

29.12%

 Small-cap growth stocks
Russell 2000 Value

5.02%

22.70%

16.36%

 Small-cap value stocks
MSCI EAFE

3.83%

19.47%

28.97%

 Developed market stocks
MSCI EM

9.08%

20.91%

64.45%

 Emerging market stocks
BarCap Aggregate Bond

1.05%

3.74%

5.72%

 U.S. corp./govt bonds
3-mos T-Bills

0.01%

0.04%

0.15%

 Cash

→ Leave a CommentCategories: asset allocation · bonds · investments · life changing events · risk tolerance

How to Hang Tough in a Tough Market

October 9, 2008 · 4 Comments

These are tough times to be an investor. The stock market’s long-term return of 11-13% fades in relevance as the value of your portfolio declines. Investors begin to doubt their decision to invest in this wild, volatile, crazy, anxiety-creating market. I’m not writing this article to say you shouldn’t feel that way. I’m writing to suggest you grasp the lessons an ugly market teaches us, and evaluate whether you have the correct plan for your portfolio.

Striking the Right Balance

The most important decision an investor makes is the allocation of their money between stocks, bonds, and cash. Some research has shown that 90% of your long-term return comes from this asset allocation decision. Many, maybe most, people jump right into buying stocks and mutual funds before they have crafted their stock/bond/cash strategy. They end up with too much in the stock market, making them susceptible to larger losses than they can tolerate.

The stock market over the long term has provided higher returns than bonds because investors demand a premium for accepting the higher risk in stocks.  Why do stocks pose more risk to investors? The brief answer is when you buy shares of a company, you become part-owner in the firm. There are no guarantees of dividends or that you will ever get your money back. If you buy a bond issued by the government or a corporation, you become a creditor. You have lent them money. They in turn will pay you interest over the life of the bond. Upon maturity you get your principal back. Regular payments and your money back. Not much risk in that. Oh, if a company you lent money to goes broke, you get paid before stockholders get a dime. Common stockholders get paid if there’s any money left after bond holders and preferred stock holders are satisfied.  It’s not unusual in bankruptcy cases for common stockholders to receive $0.   

Points to consider.

There are three major considerations when deciding on how much to invest in stocks. How comfortable you are with market ups and downs, called risk tolerance, how long your money needs to last, called time horizon, and the size of your financial base relative to your financial needs.

Risk tolerance. Investors familiar with the stock market have a better idea of how they’ll react if the market drops. If you have been in the market the past few weeks, you may have decided you want less risk than you have. This market is putting every investor through a risk tolerance test. But if you aren’t sure how much risk you will be comfortable with, you can take a smaller bite of the stock market than would be recommended based on your time horizon. You can always add to that position as you learn through experience.

Time horizon. Too often individuals consider the years up to retirement as their time horizon. Not so. You could be in retirement for 15-30 years. Let’s say you are 45 years old with plans to retire at age 65. You are healthy and expect to live to be 90. Your time horizon is 45 years. The goal is to accumulate enough funds by retirement, the pre-retirement years, that will last throughout retirement, the retirement years. Generally, it is recommended that about five years before retirement the investment in stocks is reduced and bonds and cash are increased. But your money needs to last a long time, and it’s the stock portion of the portfolio that provides growth.

Financial base. The larger the difference between your portfolio size now and where you want it to be at retirement, the larger the allocation to stocks. Stocks are the growth engine of a portfolio. Bonds and cash protect the downside risk and provide income.

Let’s say Madeline wants to have $750,000 in her 401k when she retires in 20 years. She has $50,000 today with plans to add $6,000 per year. To achieve her goal, Madeline needs to earn 11% annually. Stock market returns over the long term have averaged 12%. Therefore, Madeline would need to have a 90 – 100% allocation to stocks to achieve a 11% return.

If Madeline had $100,000 in her 401k, instead of $50,000, she could reduce her allocation to stocks because she only needs an 8% annual return to achieve her goal of $750,000.

Sample Portfolios

Here are some examples of portfolio allocations during different stages of life according to Richard A. Ferri, author of the book All About Asset Allocation.

Mid-life Allocation Range

  Aggressive Moderate Conservative
Equity + REIT  70% 55% 40%
Fixed Income 30% 45% 60%
Cash    0% 0% 0%

 Pre-retiree and Active Retiree Allocation Range

  Aggressive Moderate Conservative
Equity + REIT  60% 50% 35%
Fixed Income 38% 48% 63%
Cash    2% 2% 2%

REIT = Real Estate Investment Trust
Fixed Income = Bonds

Each investor has an allocation that is unique to his or her situation.  The above examples may or may not be appropriate for you. 

A risk of NOT investing a portion of your portfolio in the stock market is that you will outlive your money.

A risk of investing TOO MUCH in the stock market is you will not have time to recover large losses. In addition, fear may cause you to sell in a panic when stocks are at their lowest prices.

Now is the time for rational decisions. “This time is different” is the phrase that pops up each time the stock market takes a precipitous fall. It may or may not be true this time. What we do know is what has occurred in the past. History demonstrates that markets recover and eventually move up.

An exodus to cash will leave you with the daunting decision of when to re-enter the market.  Investors who run to the side-lines often wait too long to buy back in, missing some of the best days’ in the stock market. This is one of the reasons the average investor significantly underperforms the S&P 500. The other reason is that investors chase performance, buying last years’ winners. For most people the best action is no action for now.  You may want to consider making adjustments to your portfolio later, after the market had recovered.

→ 4 CommentsCategories: asset allocation · investments · life changing events · retirement · risk tolerance

Dogs and Cats Thrive on Real Meat!

September 3, 2008 · Leave a Comment

About ten years ago I did business planning for Gerry Nash,  the owner of a pet food company in Green Bay, Wisconsin.  His company produced a raw meat diet for dogs that evolved from a successful history of feeding zoo animals and selling to breeders.

Specialists at zoos and breeders knew the value of a raw diet to the health of their dogs and big cats.  The rest of us were feeding our pets dry dog food that we thought was healthy.  Ewe (squealed with a squinched up nose) was how many of us reacted to the thought of feeding our pets raw meat.  We don’t eat it, why would we feed it to our pets?

I asked Gerry Nash why a raw meat diet was better.  He asked me, what do dogs eat naturally if left in the wild?  Do they wander off to the field and chew on a cob of corn, or stalks of wheat, he asked?  No, I said.  But dry dog food doesn’t have that!    Read the labels, he suggested.  So I did.  Meat or some phrase that included a meat like ‘chicken meal’ was generally way down the ingredient list.  Topping off the list were corn, rice, grains, and other non-meat items.

My attitude was wavering but not certain, so I decided to feed my dalmatian a raw meat diet.  I brought it home frozen in patties.  My husband said he would thaw a patty and feed Sparky (we’re not creative when naming our pets).  I returned home later that afternoon to find him frying the meat.  Not only was he frying it, but he was acting like a gourmet cook spicing it with garlic powder, onion salt, and other spices.  It doesn’t smell all that tempting because this raw diet includes tripe and other organs that add valuable nutrients for dogs. 

We ditched that cooking idea and followed the instructions.  Mostly.  She was so excited when we went to the freezer to get a patty that we gave her a frozen patty.  She ate it like a bone.  It slowed her down as she enjoyed nibbling and gnawing on the patty.  She loved it!  This feeding idea worked for us because she took it outside on the grass.  For indoor feeding, thawing would be best.

The value of that diet wasn’t observable for a few weeks.  It was then we noticed the muscles that had developed on her front quarters and neck.  Her coat had an extra healthy shine.  Now we were convinced it was a better diet. 

If you have a dog or cat, give Nature’s Advantage by Animal Food Services a try.  It’s all natural, made with USA beef.  It’s also available in a dry formula, but it’s not cooked.  A freeze-drying technique preserves the active enzymes and nutrients that heat removes.  You can easily take it along for your dog when you go hiking, camping, fishing, or hunting.  It’s light weight and does not require refrigeration.

For more information or to order,  give AFS a call at (800) 743-0322 and check out their web site http://www.animalfood.com/ 

Disclaimer:  I have an interest in Animal Food Services as a shareholder.  This article relates a true story.

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“Empowering Women: Image, Self, and Society”

September 3, 2008 · Leave a Comment

Women of Colorado - do you want to spend a morning with other women to share and learn from one another?  On Saturday, October 18, 8:30 a.m. – 1:30 p.m. at the UCCS Lodge you can invest in yourself, (you deserve it) by attending the Woman-to-Woman Dialogue Series: “Empowering Women: Image, Self, and Society”. 

There will be breakout sessions and a keynote by Sharon Liese, “Every Girl/Woman Can Save her SELF”.  Lessons learned from the making of High School Confidential.  Liese is the creator and executive producer of the critically acclaimed 8-episode docu-series on WE tv, as well as an accomplished author.

One of the breakout sessions will focus on overcoming life’s financial hurdles.  I will be moderating a panel of women who will share their financial stories; the obstacles they faced, the lessons they learned, and the choices they made along the way.  Come join us for an interactive session to learn from other women, ask questions, and share financial lessons you have learned.  It’s all about helping each other.  I’d love to meet you.  Please find me to say “hi”!
 
Everyone is welcome ~ Sponsorship opportunities available

Free Parking. Suggested minimum donation:  $5.00 at the door.

RSVP by October 12, 2008 to Daryl Miller at 719-262-4764 or via email, dmiller4@uccs.edu. More information at www.uccs.edu/matrix

If you are part of a group or organization that serves women or addresses women’s issues, you can reserve space to display brochures and information at the event. 

This is the third Woman-to-Woman Dialogue Series sponsored by the American Association of University Women, The Matrix Center for the Advancement of Social Equity and Inclusion, and Women’s and Ethnic Studies at the University of Colorado at Colorado Springs.

I hope to see you there!

→ Leave a CommentCategories: Women Financial Management · education · life changing events

Investment Classes Being Offered

July 24, 2008 · Leave a Comment

If you live in Colorado Springs, CO check out the classes I will be offering on August 6 and 13.  It’s been almost impossible to find an objective, informative, interactive class where you can learn how to manage your investments.  Well, now you can.  I’ve offered this class about once a year, so if you’re interested don’t procrastinate.   Sign up and come have some fun.  Really!  Here is a description of the two classes, Investing-Basics and Investing-Intermediate.  You can take one or both. 

______________________________________________________

Does investing intimidate you?    Well, it doesn’t have to. 

Come join me to gain knowledge and confidence in making money management decisions.

If you wonder if you have too much in the stock market, are being too conservative, or are just perplexed at how to invest your 401(k), IRA, or other investments, please read on! These just might be the perfect classes for you!

Course Title: Investing – Basic.  This course provides the foundation for you to create an investment portfolio designed to meet your personal financial goals. 

What will I learn?

  • How to create an investment portfolio that lets you sleep at night.
  • The right mix of stocks, bonds, and cash based on your personal risk assessment and the rate of return needed to reach your financial goals. 
  • What diversification means and why it’s important to your portfolio.
  • The difference between a mutual fund, index fund, and exchange traded fund.
  • Investment terminology.
  • Sources of investment information.

Course Title: Investing – Intermediate. This course expands on the topics covered in Investing – Basic.  You will learn more advanced concepts and tools to manage your investments.

Both classed are designed to help you be a better money manager.  They are for anyone who wants better-than-average investment returns. 

Instructor:  Rita Janaky, CEO   (Click on my name to read my biography)

REGISTRATION INFORMATION
Location:  1115  Elkton Drive, Suite 300, 80907 (from I25 west on Garden of the Gods Road.  Right on Elkton Drive to Key Business Center.  Elevator to 3rd floor.)

Times:  Investing – Basic: Wednesday, August 6, 5:30-8:30 p.m.
             Investing – Intermediate: Wednesday, August 13, 5:30 – 8:30 p.m.

Fees:  Each class: $65 per person–Bring a Buddy and save 25%!  $49 per person
          Both classes: $110 per person–Bring a Buddy and save 25%! $83 per person
Included: hands-on in-class assignment, handouts, resources, refreshments and snacks.

Registration deadline: Friday, August 1.  Call 719.260.8000 or email rita@goldenhillsgroup.com.  Checks made payable to Golden Hills Financial Group, 1115 Elkton Drive, Suite 300, Colorado Springs 80907

100% money back guarantee! 

Comments from past participants.

“For the first time I feel like I understand enough about the basics to make more informed decisions about where I put my money.  I’m much less intimidated by the basics of investing than I was 2 weeks ago.  Thanks!” Karen Siebring, Human Resources Director, Colorado Springs, Co

“… helped me to understand general ideas so I can move on and manage my own portfolio.  Like the explanations of each item discussed.”  Tracie Lain, Accounting Assistant, Colorado Springs, CO

Come join me for an active learning experience!

→ Leave a CommentCategories: asset allocation · education · fees · investments · retirement · risk tolerance

Three Reasons to Include Bonds In Your Retirement Portfolio

June 30, 2008 · Leave a Comment

1) Bonds reduce portfolio risk by reducing volatility.

Creating a portfolio is like putting the pieces of a puzzle together.  Portfolios are built by assembling pieces of stocks, bonds, and cash, with possible additions of real estate, commodities, & alternative investments.  Modern portfolio theory taught us that by combining securities that don’t follow each other, when one leans left the other right, we are likely to achieve a more stable return.  Bonds tend not to move in tandem with stocks.  In finance terms, they have a low correlation to stocks.  So if stocks drop 15%, bonds may decline but less than 15% or they may even rise.  Bonds are the pieces that reduce short-term, gut wrenching swings in the portfolio’s value. 

A recent example.  From October, 2007 to March, 2008, the S&P 500 had lost around 16%.  The Lehman Aggregate Bond Fund, used to represent the broad U.S. bond market, was up about 4%. A portfolio split 50/50 between the S&P 500 & the Lehman Bond Fund, would have returned -6%.  

2) Bonds protect the downside.

While similar to #1, protecting the portfolio’s value is of special importance to retirees who are withdrawing funds regularly to supplement their income.  When cash is withdrawn from a 100% stock portfolio during down markets, the distribution takes a larger piece of the portfolio than if the markets were up, and that piece is gone so it can’t come back when the markets climb.  

For simplicity let’s consider a portfolio made up 2,000 shares of an exchange traded fund, IWV, that represents the U.S. stock market.  The price per share has plummeted to $78.  Each month the retiree withdraws $1,000 for living expenses.  13 shares are sold at $78 to provide this month’s withdrawal.  Next month IWV has risen to $95 per share.  Only 11 shares have to be liquidated in order to withdraw $1,000.  The two additional shares that had to be sold at $78 are no longer in the portfolio and able to come back with the market.

In a declining stock market, cash and bonds can provide the income needed.  When the stock market comes back, (yes it will rise again) the stock portfolio will not have been depleted so will take full advantage of the rising prices.

3) Bonds provide income.

Bonds pay interest, which makes up most of their return.  The other portion of the return comes from the change in the price.  Individual bonds typically make interest payments every 6 months.  Bond funds generally distribute interest monthly.  The interest payments provide stability to a portfolio, and dependable cash distributions to investors.  When the markets are performing poorly, during a bear market, interest payments are a stable source of income.

If you rely on distributions from your investments to supplement income.  If you do not have other income streams to use when the stock market is declining.  If your financial position is such that you are concerned you may outlive your money.  Then investing a portion of your portfolio in bonds is wise.

The portion you allocate to bonds could vary from 15% for the aggressive investor with a time horizon over 20 years, to 85% for an investor more concerned with preserving their portfolio and has a life expectancy less than 5 years.

 

 

 

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Do You Have an Estate Plan? I don’t but I will soon.

June 13, 2008 · Leave a Comment

Last night I attended an estate planning session presented by Catherine Hammond Shell of Hammond Law Group in Colorado Springs.  www.springsestateplan.com Wow!  She provided 2 hours of easy to understand information on techniques to distribute your estate upon your death.   She convinced me that we need to create a plan so whatever we have accumulated will go to our children, the most precious assets we own.

Do you want your finances aired to the public upon your death?  No, me neither.  Check out a Family Wealth  Trust.  This is a trust that is not just for the mega-rich.  According to Catherine, anyone with assets of $100,000 would benefit from one.  This is how it works:  You set it up, then transfer the titles of your major assets from your name to the name of the trust.  Name yourself the trustee and the beneficiary.  Voila, you are in control.  But when you die there are no assets in your name, so there is no probate.   

My main concern is for my husband should I precede him in death.  He is disabled.  If I die first he will have to use up most or all of our estate before he can qualify for medicaid should he have to go to a nursing home.   I now know there are plans that can be established to preserve at least a portion of our estate for our children.  Any one with a disabled spouse or a special needs child owes it to themselves to talk with an attorney specializing in estate planning (NOT your real estate attorney, general attorney, divorce attorney, etc).  We need to plan today so those who depend up us now will be taken care of when we’re gone. 

Another point.  Investments, life insurance, and real estate are not the only assets of value that you own.  You have personal assets such as grandma’s tea cup set, grandpa’s handtooled desk, the kids favorite rocking horse.  You also have personal beliefs, talents, skills, and years of wisdom.  You can designate who gets a tea cup set, but how do you pass the essence of who you are to future generations.  Wouldn’t you like to know more about your great-grandfather or eccentric great-aunt Betty?  Well, go ahead and write your story, create an audio tape or video tape.  It’s fun to imagine future generations getting to know you, and maybe even get a better understanding of themselves through your story.

If you live in Colorado Springs, CO, I recommend you attend this free seminar if it’s offered again.   I am NOT an attorney of any sort, and certainly not an estate planner.  This is complicated stuff that needs guidance from a professional.  I just want to get you thinking of what might be an unpleasant topic… your death.  It’s inevitable, so get over it so you can plan for it.   

 

 

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