Tuesday, January 26, 2016

How to be certain in uncertain times

The new year has not been kind to investors. In fact, to put it bluntly, it’s been downright brutal from the very start. The only bright spot is that we know what fueled the sudden downturn. Just take a look at what’s going on around the world.

There were the North Koreans testing a nuclear weapon. Or at least they’re claiming to. In China, a steadily sagging economy is perpetuating a staggering slide in their stock market. And in the rarely stable Middle East, tensions remain high between Iran and Saudi Arabia.

All this uncertainty has spurred an economic slowdown, which, in turn, has lead to dramatic drops in commodity prices. Oil prices have been the most visible; we see them every day at the pumps. But copper and steel have also taken terrific tumbles.

Yes, there’s no doubt about it. The world has been dealing with an onslaught of unsettling news.

In the midst of the uncertainty, there is a bit of good news. At least domestically. Our own auto companies are reaching unprecedented heights. In 2015, car sales were 17.5 million. While it wasn’t by much, it was enough to break the record of 17.4 million set in 2000. But bright spots notwithstanding, the pervasive mood is still one of caution and apprehension.

As a financial advisor who has guided many households through unsettling times, I suggest everyone keep a level head. Yes, it’s upsetting to see your daily account values tumble, but changing your financial course in the middle of a downturn may hurt your nest egg in the long run.

Of course, you could sell all your investments now and buy them back when things get better. But while this strategy may work for a rare few, in my experience not many investors ever get it right on both ends. They typically sell at the bottom and re-enter near the top.

Most are better served by developing a diversified strategy and maintaining it throughout economic cycles. Generally, it’s a good idea leave things to the money managers you had confidence to manage your funds in the first place

They follow your investments and the economic climate daily, affording them the opportunity to jump on opportunities that can add to the value of your portfolio.

Unfortunately, in the investment world it’s too easy to pull the plug on your well-thought-out plans. More often than not bad things happen when fear takes control.

Imagine you’re on a commercial flight and your plane suddenly encounters some severe turbulence. Would you consider asking the pilot if you could take over and land the plane?

That doesn’t make any sense, but that’s exactly what some are doing with their money. Modifications in your portfolio may be appropriate during a review. Tweaking a portfolio periodically may be in order. But total abandonment? It seldom turns out well.

Abandoning your strategy may make you feel better initially. But in the long term, the odds are your nest egg will suffer. I understand that it’s difficult to see account values fall. But I’m confident that investors who stick with their strategy will be rewarded for their commitment.
I don’t know when the slide will stop or the market will turn around. But I do know both events will happen.

Monday, January 18, 2016

Is your investment portfolio out of control?

From my perspective, time is moving at the speed of light. I’m continually reminded that we cannot control time. We can only manage it. To a certain degree, the same principle applies to investing. You can’t dictate your results; you can only manage your investments and hope for the best.

Let’s take a look at the conservative portion of your portfolio. You’ve likely got your money earning interest in a bank or credit union. You can- and certainly should- shop banks for the highest interest rate available. But other than that there’s not much you can do. You can’t control the interest rate; you can only manage it.

On the growth side of your portfolio, you can choose virtually any stock or mutual fund. The choice is almost limitless. Common, preferred. Domestic, foreign. By sector, by country. You name it.
Whatever you choose, your investments can move up or down on any given day. You can’t totally control outside events that affect the direction. But you can keep a close watch and manage your investments accordingly. And since it’s still early in the year, the good news is that you have more than eleven months to do just that.

Let’s take a look at some activities you can control. First, you can review the IRA rules to determine if you’re eligible to make a contribution.

If you don’t already have an IRA account, you can open one now, or contribute to an existing account and deduct the contribution on your 2015 tax return. This applies to a regular IRA account. Contributions to a Roth IRA are not deductible, but are withdrawn tax-free.

You can also manage your retirement plan contributions. The beginning of a new year is always a good time to review your previous year’s contributions. For example, if you were contributing five percent of your pay last year and it was relatively painless on your cash flow, now might be an opportune time to up that contribution to six or seven percent.

If five percent was leaving you feeling a bit squeezed, you could do some number crunching on the spending side of your ledger and find a way to do some trimming. Either way, it’s something you can control.

And while there’s much in the world that we can’t control, it’s not always a bad thing. Prices at the pump, for example, are down substantially. Conversely, health care costs continue to rise.
This past Christmas I received a fit-bit. For those that are not familiar, it’s a device that measures your daily steps. Clearly, I can manage that number; set and meet a daily goal. But, while it may help my health, it can’t assure good health.

The bottom line is that you can manage activities but you can’t control results. In order to do that you need to establish measurable investment goals and objectives. Carefully monitor your progress and make any adjustments that may be necessary.

When it comes to finances, nobody can ever guarantee results. That’s why it’s up to you to put your self in the best possible situation for success.

Knowing that you can’t dictate results, you need to manage the elements that lead to them. Save and invest and periodically review. That’s the best you can do.

Monday, January 4, 2016

Do you have the patience to be wealthy? Success takes more than wishing

I’m always amazed at how busy the gym is at the beginning of a new year. I doubt this year will be an exception. The locker room will almost certainly be packed, but by mid February the crowd will be back to normal.

Everybody wants to be fit, healthy and wealthy, but attaining these goals takes a lot of effort and a little luck. As with almost every aspect of life, success doesn’t come just because you wish for it.
Except for rare occasions, you have to work for success and in most cases that means a lot of hard work and sacrifice

For example, you can’t simply wish to become a doctor. It’s an admirable goal to be sure, but it requires countless hours of schoolwork. And that means long nights at the library, exams that need to be passed and, of course, residency at a hospital with long hours and minimal salary.

Many other professions follow a comparable path, but at the end of the day success is not achieved just by wishing for it.

Goal setting is also a huge part of your financial journey through life. You don’t achieve financial independence just by wishing and hoping for it. Again, there are rare occasions when that could happen. You could win a lottery, get lucky at a casino or inherit a fortune from a rich uncle.

But those are not things you can count on. The vast majority of wealth is achieved by saving and investing on a regular basis. You have to follow a well thought out plan and basically stick with it regardless of circumstances.

My experience as an advisor leads me to believe that many investors act a little bit like those people that come to the gym and soon disappear.

Because they didn’t achieve their desired results, they either quit or change direction. I’m not a fitness expert, but I do know it’s difficult to change your physique in a short period of time. You shouldn’t expect financial success to happen overnight either.

In the financial world, many investors become impatient too easily. In the course of a lifetime they might get discouraged and either give up or change strategies far too often. This is an especially important point to keep in mind today.

I can’t tell you not to be disappointed if you look at your year-end values and realize that 2015 was a down year. But I will tell you not to be discouraged. A bump in the road doesn’t necessarily mean you need to change your strategy entirely.

Might some reviews and modifications be in order? Of course. But wholesale changes are often nothing more than an indication of impatience. Patience is a common trait of many successful investors I know. That and a good, firm grasp of your financial goals.

As we begin a New Year, I want to remind everyone that setting goals is important. But just setting them is the easy part. The journey to achieve your goals entails a lot of hard work and commitment.
One of the greatest dangers along the way is becoming impatient during trying times and making wholesale changes to your strategy.

I’ve often said that successful investors need to have an iron stomach. I’m saying it again.