Successfully Transitioning Your Portfolio

At some point you will need to make changes to your investment portfolio. Often, investors and their advisors make wholesale changes all at once. But that’s not really in your best interest. Read on to find out how to successfully adjust your portfolio. In a previous article I discussed the importance of matching the investment strategy used to expected market conditions. Using the wrong strategy at the wrong time can be devastating—as many found out in 2000-2002. In follow up articles I provided specific strategies to significantly increase portfolio income, and other strategies designed to double your money every 5-7 years in single-digit return markets. You can read those articles at http://www.guardingyourwealth.com. Perhaps you’ve decided to make changes to your portfolio. It may be to take advantage of the strategies I’ve discussed. Or it could be because your life situation and needs have changed. Or it might be that you’ve neglected your portfolio garden and there are as many weeds as vegetables. Regardless of the reason, keep these steps in mind. They’re the ones I follow when transitioning a client’s portfolio. 1) You need to analyze your existing portfolio. Take a close inventory of your investments and research their performance. The last thing you want to do is to cut down the wrong plants while you are weeding your garden! You can find performance information for many investments at www.morningstar.com. It takes more work but it’s better to calculate your actual return. Subtract what you invested into a particular holding from what it’s worth now. If dividends and interest aren’t being reinvested, then add any dividends/interest paid to that figure. Divide that figure by your initial amount invested. For instance, if the result is .015, then that investment earned 1.5%. Look at that return in relation to the length of time you’ve held it to determine whether or not it needs to go. 2) You may need to change your attitude toward investments. It’s easy to become attached to a particular investment. Don’t. It’s there to make you money. If it does, great. If not, find another that will. Constantly ask yourself, “If I were investing this money today, would I buy this investment?” If not, then it’s a weed. 3) See if there are surrender penalties or other charges associated with getting rid of the weeds. If it is a mutual fund, there are penalties associated with B shares and sometimes with C shares. Annuities are notorious for onerous penalties. 4) Wait for the right time to sell your weeds. There may be an investment that you want to change that is currently trending up. Don’t sell it then; wait until it starts to decline in value. Doing this for my clients has earned them several percent just by watching and waiting. 5) Conversely, after the weed is sold, don’t feel rushed to jump right into another investment. There are cycles to every type of investment. Wait for the right time. If it’s a stock, determine a buy ceiling—you’ll only buy it if it trades at or below that price. Then wait. Even if it takes months, it’s better to keep that money in cash than to pay too much. 6) Closely tend your new garden. We can’t throw some seeds in the ground, ignore them and expect to come back later to reap a harvest. Gardens must be tended. So does a portfolio. No matter what the investment, it is important for you to monitor each one and to make adjustments when necessary. Many advisors want you to think that if you buy a certain product, all your worries will be gone. You can set it and forget it, they say. It’s not true. In these cases, they are the ones who are going to set it and forget it! You’re better on your own than using one of these advisors. Like gardening, investing is hard work. There are some that really enjoy it, while others just want the harvest. If you don’t have the time to properly tend your garden then find a professional who will do it for you. Ask them how they would transition your portfolio. If they don’t follow these steps it’s a clear sign they aren’t the advisor for you. I’ll personally respond to your questions, free of charge. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Strategies To Boost Growth

You should continue to grow your nest egg even when retired--unless you’ve been blessed with more money than you will ever spend! Last week I discussed in detail how retirees can boost their income without taking on unnecessary risk. This week, I’ll explain ways you might safely grow your portfolio while minimizing risk. I believe that higher returns can be achieved with less risk when the strategies used to invest in the stock market are tailored to market conditions. Unfortunately, few advisors recognize this need and leave their clients to ride the roller coaster of worry. The traditional approach to growing a portfolio involves allocating a portion of the assets to large, medium, small and international stocks. The appropriate mutual fund is chosen and it is expected that once you put your money into it that you will keep it there for 5-10 years. Making changes prior to then, this approach says, reduces your chances of doing well. This philosophy is based on the idea that stock market performance will be consistent with what it’s done in the past. If large company stocks have averaged 10% over the last 50 years, they should average 10% in the future. And they may. But the question is how long will it take? There may be extended periods of time where the markets perform significantly above their historic averages (the late 1990’s) and times when the stock markets perform well below their average (2000-2002). The buy and hold strategy is a valid strategy. Everyone should use it for a portion of their portfolio. That doesn’t mean that I want to rely on it when the economy is in recession! If you are retired or near retirement, you can’t afford to base the safety of your nest egg on the hope that the markets will someday revert to their mean. That’s why so many are uncomfortable investing in the stock market. That’s why we’ve heard so many horror stories. You can achieve the growth you desire while limiting your downside loss to less then 10%. The key to doing so is matching the strategy used to present market conditions. People lost money in the stock market from 2000-2002, not because there was a problem with the markets, but because they were relying on a strategy that works poorly in those conditions. There is no such thing as a perfect strategy. Each has strengths and weaknesses. By analyzing the type of markets that should exist the next few years, you can then deploy those strategies designed to work best in that type of market. Don’t put all your eggs in one basket, though. I will bias a portfolio toward a particular strategy, but I utilize multiple strategies to reduce risk. I’m basing my current growth strategy on several important facts about today’s market conditions. First, the Bull market is entering its third or fourth year. That is longer then the historical norm. Second, that Bull market was fueled mainly by low interest rates. But short-term rates have risen from a low of 1% to the current 4.5%, and are expected to rise further. Third, rising energy prices have crimped consumer spending, as well as spurring price increases across the board. All these taken together means that, although the underlying economy is very strong, it will be facing some stiff headwinds the next year or two. Most analysts expect only single digit returns from the indexes. In markets where the indexes only produce single-digit returns, you don’t want to rely on index-oriented strategies. In those markets, individual stock picking and dividends take on much greater importance. As a result, I’m relying more on individual stocks or selected closed-end funds, especially ones that pay the investor first through healthy dividends. In fact, my growth-oriented portfolio of stocks produces an income stream of 5-6% a year just from dividends! Just as an experienced sailor has to adjust the sails to deal with changing winds, investors need to modify their strategies to take advantage of changing markets. Don’t choose a skipper that sticks to only one strategy. Have an advisor that seeks to maximize your return, no matter what the market conditions. Doing so should provide growth while limiting your risk of loss. I’ll personally respond to your questions, free of charge. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Income-Boosting Strategies

Retirees have two major investment goals. They want income to provide for their living expenses today, and they need growth so they can maintain their standard of living in the future. This week I’ll focus on effective ways to manage your portfolio that may dramatically increase your income. Next week I’ll share growth-oriented strategies. My clients expect me to find opportunities to increase their income and grow their money. That’s why I’ve developed specific strategies using high-yielding securities--strategies my clients can’t get elsewhere. Understanding the investments used may help you develop your own strategy. High-Dividend Paying and Preferred Stocks: The days of being able to buy a dominant company like AT&T, hold it for life and live off the dividends are over. A great company today can be a has-been tomorrow. If managed correctly, though, a basket of high-dividend paying stocks can be a great addition to a senior’s portfolio. There are many quality companies that pay dividends of 6-9% per year. These are often the companies ignored by Wall Street and other advisors because they have little growth potential. Instead, they have stable cash flows and pay healthy dividends. For instance, Citizens Communications (CZN) is a rural telephone company. Rural doesn’t mean small. They operate in 24 states and are one of the nations’ largest independent telecommunications providers. Boring. Yet it pays out a dividend of over 9%! I’m not saying you should rush out and buy Citizens, but this is just one of many such over-looked companies. Canadian Income Trusts (CITs) are another example of securities that can provide an income stream of 5-8% per year. CITs are foreign securities that trade on the Pink Sheets in the U.S. Don’t think that they are risky companies because they trade on the Pink Sheets. They aren’t. In fact, many are some of the largest and most stable businesses in Canada. For instance, Yellow Pages Income Fund provides online and offline telephone directories across much of Canada. Its business is stable and doesn’t grow by leaps and bounds, yet it pays a dependable dividend over 5% in U.S. dollars. Moreover, it has steadily increased it. Closed-End Funds (CEF): These are similar to the open-end mutual funds we are all familiar with. The difference is that they act more like a stock. Money is initially raised in a public offering. The money manager then oversees that pool of money. The size of the pool isn’t determined by investors putting money in or taking it out. Just like a stock, investors buying and selling shares in the CEF determine its share price, not the underlying value of its investments. This presents opportunity. First, the manager has the ability to buy investments for the long-term. Unlike the open-end fund manager, the CEF manager doesn’t have to sell investments to fund shareholder withdrawals. Secondly, assets can be purchased for a discount to their market value. Morgan Stanley Global Opportunity Bond Fund (MGB) is an example of a closed-end fund that has done well. Its current yield is over 8%. Typically, I only recommend buying CEFs trading at a discount, but this one may be worth its premium. High-yielding investments have up and down cycles so you have to be disciplined and patient. These cycles don’t affect the dividend, but you should only buy when the investment is at or below an established target price. The problem with these investments is that they require work. They are not investments the average investor should own unless that investor is willing to commit several hours a week to research and monitor each one. You will also have to make adjustments from time to time. On the other hand, isn’t that what people should expect from their advisor? Aren’t you paying them to manage your money? Yet few advisors use these gems. Most advisors don’t even understand these investments nor do they have effective strategies that leverage their benefits. Instead, they focus on selling you, then moving on to the next person. You deserve better. If you aren’t able to invest the time and energy into managing investments like these you should find a professional that will. There’s no reason you should have to settle for low-yielding investments. Have a financial question? Send me an email and I’ll personally respond, free of charge. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Saving Your Retirement

Everyone would love to retire early, but they also desire to be free from the fear of running out of money. Changing your attitude toward investing and the approach you take will help you accomplish both. Read on to see how you can retire years sooner and make you money last decades longer. Last week I talked about our need to change the way we view retirement (read it at www.guardingyourwealth.com). I explained that seeing retirement as a transition to a less-stressful, more enjoyable job drastically reduces the amount you have to have socked away. Even working just part-time during retirement can allow you to retire years sooner, or make your money last years longer. Changing our view of retirement is only half of the solution. We also need to change our attitude and approach to investing for and during retirement. This by itself will have a similar impact on when you can retire or how long your money will last. Combining the two together can completely change the retirement equation. Our life spans grow longer every year, placing greater demands on our nest egg. Moreover, as a nation we are saving less and less. In fact, recently the national savings rate was negative—collectively, we spent more then we earned. Let’s face it—few of us save as much as we should. The demands of raising a family, saving for our kids’ education and caring for aging parents make it difficult to set aside as much as is needed. By the time our kids are independent, our retirement may only be 10-15 years away. Unfortunately, the conventional wisdom provided by the financial services industry hasn’t made reaching our goals any easier. Conventional wisdom says that you should invest more conservatively each year you are closer to retirement. Their wisdom also says that in retirement, you should only withdraw 4% from your portfolio each year. The conventional wisdom is wrong. Frankly, if the average person follows this advice it will be a wonder if they retire at all! If those who have been successful setting aside a healthy nest egg follow conventional wisdom it will needlessly reduce their lifestyle or impact what they leave their children or use to support charitable causes. Traditional portfolio management views stocks as being risky and bonds as being safe. As such, you should increase the amount you have in bonds and decrease the amount you have in stocks as you get closer to retirement. The rule of thumb is that you should have roughly your age in bonds, so if you are fifty your portfolio should be 50% bonds, 30% stocks and 20% cash. That’s crazy! Along with that view is the philosophy that you should buy an investment and hang on to it—buy and hold. Investors that lost 30-50% between 2000 and 2002 know that buy and hold can be a risky proposition. We all know that there is the potential for stocks AND bonds to lose value. This is referred to as market risk and interest rate risk. Since the industry believes that you should buy and hold, the only way to minimize the overall risk to your portfolio is by changing the allocation between stocks, bonds and cash. It all sounds great—but by believing it you may be forgoing tens (or even hundreds) of thousands of dollars. I don’t accept their underlying assumptions and neither should you. There are other, more effective ways to manage portfolio risk that may dramatically increase your returns. Think about it. Interest rates the last several years have been at historic lows. That didn’t change the traditional allocations provided by the industry. They still said you should have 50% of your nest egg in bonds if you were 50 years old. The return on bonds wasn’t even enough to keep place with inflation and you were supposed to put half your money in them? Ridiculous. It’s possible to grow your money faster with less risk. It’s possible to draw out more than 4% without the fear of running out of money. And it’s done by adjusting conventional wisdom to the realities of the markets. Next week I will share specific strategies and methods to do just that. Have a financial question? Send me an email and I’ll personally respond, free of charge. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Work Isn’t a Four-Letter Word

In our culture, the main goal of retirement is to put our working days behind us and devote ourselves to the pursuit of pleasure. Many find, though, that continuing to work in some form keeps them active and gives their lives purpose. Changing your concept of retirement may even allow you to retire sooner. Retirement is far different today than what it was for our grandparents. In those days, life spans were much shorter and work more physically demanding. Most didn’t even make it to 65, and those who did were often forced to slow down due to health concerns. No one ever dreamed of having decades of doing whatever they pleased. How times have changed! The ‘seasoned citizens’ of today are energetic, mentally sharp and physically fit. As a result, retirement should be viewed not as a cessation of work, but as a redirection of activity. Many are discovering this new chapter in their lives is even more meaningful and fulfilling than their years of traditional ‘work’. When someone wants to be able to retire and stop working all together, it increases the amount they have to have saved to achieve that goal. For instance, if someone needs $30,000 a year off of their investments, they should have $700,000 or more set aside just for that purpose. Many haven’t built such a nest egg and think they must work longer before they can retire. That’s not necessarily true. It all depends on your view of retirement. Many of the people I know would be bored to death if all they did was play golf and travel. They’ve reached the pinnacle of their careers and enjoy staying busy. They want to keep their minds active. Changing your view of retirement may actually allow you to retire sooner. It may be possible to ‘retire’ from your stressful full-time job and become a consultant in your area of expertise. Doing so would allow you to better control your work schedule while still producing an income. For instance, I was talking with a gentleman yesterday who took early retirement from a major chemical company, but still works for that company 20 hours a week as a consultant. He chooses his own hours and gets paid well for his efforts. Yet he still has free time to pursue his other interests. I have another client who retired at 55 who works short-term assignments in various locations for the same company. It allows him and his wife to travel and to spend a couple months a year in a different country. That means he doesn’t have to tap his retirement money and he has the freedom to only accept the assignments he wants. Talk about having the best of both worlds! Earnings from even a part-time position will have a major impact on the amount of money you have to have set aside. Using the example mentioned above, let’s say that working as a consultant part-time brought in $15,000 a year. The result is you would only need $15,000 a year from your investments. So instead of needing a $700,000 nest egg, you would only need $350,000. Some seniors use retirement as a chance to pursue a new career entirely. There may be less pay, but there’s usually less pressure, too. And if your new career choice doesn’t pan out, you have the financial freedom to change course. Others might take a sabbatical from work for a year or so, then re-enter the work place with renewed energy. Many seniors who are blessed with abundant resources are eager to volunteer their time to worthy organizations. Many skills important in the private sector are even more critical for non-profits, yet they are often the ones who can least afford them. What a blessing to be able to invest your considerable knowledge and abilities and truly make a difference in the lives of others. Changing your concept of retirement can relieve the stress and pressure of attaining lofty financial goals. It will allow you to get more out of life while giving you more freedom. And when you love your work, it can give you a great sense of fulfillment. It turns out ‘work’ isn’t a four letter word! Have a financial question? Send me an email and I’ll personally respond, free of charge. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.