Buy, Sell, or Hold?

The markets continue to be tumultuous and we’re seeing the markets re-test the lows that were reached in August. Since October 29th, the S&P 500 is down 8.5%, the Russell 2000 is down 10.7% and the emerging markets are down over 15%. Even energy stocks are getting hit hard. Should you be selling stocks, gritting your teeth and hanging on or be stepping up to the plate and buying?

To answer that question, you can’t just look at... the headlines or your account value and decide whether or not action should be taken. The market headlines are based on averages. Movements of the bigger companies in the averages can easily skew the performance. The financials have been getting hammered lately and financials make up a large part of the S&P 500.

Of course, that doesn’t mean that other stocks are immune. Investors (and traders) can panic when they see the decline of the averages and they sell everything. And sell they have.

The decision to buy, sell or hold shouldn’t be based on the overall market. It shouldn’t be based on fear or greed. I believe we need to look at individual holdings to determine which action we should take.

I don’t know of anyone who has stopped using their telephone or internet based on the recent decline in the market. You’ll continue to use it and you’ll continue to pay your phone bill month after month. That’s money the telephone companies can use to grow their businesses and to pay dividends. Rural telephone companies also receive subsidies from the U.S. Government. This represents a very stable cash flow.

To say that differently, a rural telephone company’s ability to pay their dividend usually isn’t affected by the economic cycle. That’s one reason I regularly use them in my clients’ portfolios.

That hasn’t prevented a sell-off of these rural telephone carriers of late. Those buying these stable companies now are handsomely rewarded by higher dividend yield (many now in the 6-10% range).

The underlying businesses of these companies haven’t changed. Their ability to pay and increase their dividends hasn’t changed. So it’s hard to justify selling them now. It’s quite easy to build the case for buying them.

Another group of securities that haven’t been fairing well lately is the closed-end bond funds. Typically, bond funds do well when the stock market is falling and interest rates are going down. Credit-related panic selling, though, has driven the price some quality shares down 8-10%. Will the credit crunch adversely affect these holdings?

I don’t think it will. There are closed-end funds with attractive portfolios of bonds that can be purchased for less than the underlying costs of the bonds themselves. For instance, a sovereign government fund isn’t going to be adversely affected by the sub-prime mortgage situation, yet these shares have been sold-off just like everything else. But they continue to pay their dividends and have yields over 6%.

With the 10-year U.S. Treasury now yielding less than 4%, these are very attractive yields. As market fears subside, investors looking for a higher level of income will once again recognize these securities and move money back into them. That should bring a recovery in their share prices. In the meantime, we continue to earn over double the 10-year Treasury note.

In short, if we just look at the headline numbers of the major stock market averages, it’s easy to come to the conclusion that we should get fearful, sell off stocks and move a large part of the portfolio to cash. When you dig below the headlines and do some research you see that there are high-quality, defensive companies that make sense to continue to hold and to buy more.

I’ve just highlighted a few examples. The market downturn, in my opinion, has also created some attractive opportunities in growth-oriented companies. In particular, I like companies that are part of longer-term global trends. For instance, global growth and the need for alternative energy have spurred tremendous demand in several industries. Those stocks are now very attractive.

The key is to not run with the herd. When everyone is rushing for the exits, those brave enough to stay behind can pick up some real bargains. I believe that now is one of those times.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at www.guardingyourwealth.com.

Remembering a Surefire Investment

As we celebrate Thanksgiving, now is the time to start considering end-of-year returns. It is also time to analyze our investments and decide if changes need to be made. Here is one sure-fire investment that you need to consider as you evaluate your portfolio and calculate your wealth.

The returns of the market indexes are an important yardstick when measuring the performance of your portfolio. But there is another measure of return that is harder to define but vastly more important. It’s the measure of your wealth.

Wealth is a term defined by Madison Avenue as having it all: the luxury car, vacation home, fine furniture, etc. Wall Street defines wealth as being a multi-millionaire with a private helicopter and a Park Avenue address.

There’s a different definition of wealth that helps us focus on what is truly important in life. It affects us all, regardless of the size of our bank account. The Bible defines wealth as simply having more than you need. Based on this definition, if you’ve got leftovers in the refrigerator, you’re wealthy!

Our founding fathers understood this definition well. Just look at the very first Thanksgiving held nearly 400 years ago. The Pilgrims had fled to the shores of this unsettled land to escape persecution and find the freedom to worship God as they saw fit. Their first year was extremely difficult. Disease wiped out over half of the original settlers. It’s hard to imagine the emotional and physical challenges they faced daily.

Yet as they gathered their hard-won harvest in the fall of that first year, they took the time to give thanks to their Creator. I’m not sure I could be so thankful if I were in their situation. But they knew that even in the face of hardship and grief, they were blessed. They had more than they needed.

The Pilgrims aren’t the only ones who have led thankful lives. More recent generations have struggled through hardship of their own, including two world wars and the Great Depression. People living in those times knew what it was like to do without. Yet they were thankful for living in the greatest country on earth.

How times have changed! The only reason we miss a meal nowadays is because we’re on a diet. Many buy new clothes just to have the latest color or style. The national savings rate is at an all-time low and spending is up.

What lessons can we learn from our founding fathers and our grandfathers that will help us achieve a better balance in our own lives?

First, we have to stop defining wealth by our quantity of material possessions. It’s an old saying, but there are many things that money can’t buy: love, health, family, and friends. When is the last time you measured the value of those kinds of “assets”?

Second, we need to refocus our investments. I don’t mean investments of money, of course, but investments of ourselves: our time, our attention, our love.

I’ve been doing just that. Last year, I made the decision to give up my nice office in town and start working from home. This wasn’t done for financial reasons, but from an inner conviction that I needed to spend more quality time with my wife and children.

I also believe it’s important that children know and learn from their grandparents. With access to airplanes, telephones, emails…and even video, the only thing that separates us is our priorities.

Grandparents have a unique opportunity, and a solemn responsibility, to pass on a lasting heritage to their grandchildren. Family traditions, a strong moral base and wisdom gained from life lessons are all far more valuable than a college savings account.

All of us need a little reminder every now and then to not let the urgent activities of life overshadow the important ones. What better time than Thanksgiving to pause and reflect on our many blessings, while also looking ahead at how we can live more meaningful lives.

It’s never too late to invest yourself in those you love. The benefits will last a lifetime. If you’re looking for a sure-fire investment, look no further than family and friends. I can guarantee that the returns on your investment in their lives will far exceed those of the best-ranked mutual fund!

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at www.guardingyourwealth.com.

Watch Out for Those Who Prey on the Elderly

I receive quite a few e-mails requesting free financial advice. Often the questions are fairly routine, but a few share heartbreaking stories of investors who are trapped in difficult situations. In this case, the writer was glad to have me share her story, in hopes that it would prevent others from repeating the same mistakes.

Phyllis, (not her real name), contacted me recently about some concerns she had about her elderly father's finances. "I asked him if he had any money in a certain type of investment. He told me he didn't think so. Turns out he did. About a year ago he went to his bank because a CD was coming due. The teller told him he had a lot of money and he should talk to someone at the bank who could get him more money than CDs.

"He was then introduced to someone he thought was a 'banker' but was in fact a broker with the bank's investment services company. He took the 'banker's' advice and invested over $150,000 into this high commission, 10-year investment. He was 85 years old!

"He was told that the money was safe and it could be made available to him anytime he needed it. He was not told of surrender charges, commissions and fees. He didn't understand that the risks were much different than those associated with a CD.

"He really liked the 'banker' and would visit her when he went to the bank. He said she gave him a mug, some pens and two sweatshirts. Soon after, he withdrew all of his other monies ($170,000) so he could "consolidate" all of his investments with her per her advice."

With further investigation, Phyllis discovered that this "banker" had invested 90 percent of her 85 year-old father's money into variable annuities. Now 90 percent of his money was in the stock market! When the penalties on one annuity were over, she had him roll it to another. When she went to work with another bank, she had him transfer his money there, continuing to tap all his available assets.

Phyllis also discovered that the banks this broker worked for were heavily fined by the state for selling annuities to elderly investors, like her dad. This had been big news in her area, and once Phyllis realized her dad had been a victim, she contacted the state for help. But unfortunately, her dad had purchased his annuities just outside the time that the fine covered, and he could not get a full refund of his money.

She has contacted the banks in question, and while they agree with her that putting an 85-year-old into a variable annuity is inappropriate, they just keep passing the buck. There's been an offer to reduce the surrender fee by half, but that's far short of a full refund. The broker hasn't been fired, and her father's annuities won't come due until 2015, when he'll be 95 years old. Until then, he's living on $15,000 from his pension and Social Security.

"What really hurt and repulsed me," explains Phyllis, "was the fact that this broker pretended she really cared about my father. He thought they were friends. He shared all of his financial information including banks and bank account numbers, CDs, etc. Information which he never discussed with any of us kids. So she actually knows more about my father's finances than I do. She taunted me on the phone about that.

"He thought since she was all dressed up and working with the bank, that she was intelligent and could look after his money better than we could. He thought she was actively managing his money daily.

"Tell your clients to share their financial information with their child. Their children may not have the financial background but they care about their parents. My father is a living example that these banks are continuing to target seniors (for what many consider inappropriate investments.)"

Seniors beware. You can't trust someone with your money just because they work at a large bank, dress nicely and give you a free mug. These people are trained to gain your trust, uncover your assets, and earn as much commission off of you as possible. Not every "bank broker" operates this way, but many do. Skepticism is a healthy thing!