The Asset Allocation Advantage

The financial markets ended June and the first half of the year in an explosive fashion last Friday. Stocks rose two to three percent. Gold gained 3%, oil shot up 9%. Today, stocks are giving back some due to the weak employment report this morning. As June ended, the stock market averages could not pull positive for the second quarter; The Dow, SP500 and Nasdaq were off 2-5%. For the first half of 2012, the numbers show more strength; with price gains of 7-12%. To achieve those results, you needed to withstand reductions (drawdown) in your account value of 9-12% however.

It’s somewhat disconcerting in that the wild price swings have continued this year. A news announcement in Asia or Europe ripples across the time zones, and jerks our markets up and down. This often gives us reasons to question the validity of our investment strategies, and the strength of our stomachs. In the markets, when your money is invested, it's the journey along the bumpy road that will test your will and often de-rail your chances of achieving your goal. Another roadblock to our long term success: fear and greed. We’re wired in a way to avoid fear and crave success, which can turn to greed if not reality-checked. This usually leads to making poor decisions regarding our investments. It’s much better to have a plan, and then a backup plan also. The skittishness and price swings of the stock markets are forcing most investors to re-think the strategies of the past that have stopped working recently. The “buy-and-hold” approach with stocks and mutual funds has not produced decent enough gains to achieve many people’s goals the past 10-12 years.

One old-school paradigm that we agree is gaining steam is “asset allocation”; that is – designing a portfolio with specific allocations to stocks, bonds, metals, commodities, cash, and others that will perform well in most time periods, while lessening the big drawdowns in the overall portfolio, and provide some income. I’ve uncovered one such portfolio run in real time since the early ‘70’s that’s produced over 9% average* gain for 40 years; it has been implemented with our clients started last year. Ask me for details.

Retirement (I.R.A.) Deadline Looms

I.R.A. and Retirement Plan deadlines in two weeks !

At this time, it's probably a good bet that you're working away at your income taxes. Every year, it seems like an increasing chore to get all the papers in order, then decide if you can get-r-done yourself, or hire a tax preparer to make the numbers "dance" - while hoping for a nice refund.

In all this paper-shuffling, let's not forget the "free lunch" (well-almost) that the tax code offers us; contributing to or establishing a retirement account to lessen our taxable income. This year's deadline for the 2011 tax year IRA contribution is April 17th*, fast approaching. A prior blog covered some of the account growth you could achieve by regularly contributing  to your retirement account every year. You can view that at: http://moneyruminations.blogspot.com/2008_03_23_archive.html The IRA contribution limits are $5,000 per year, and $6,000 for those over age 50.

A few additional actionable points on this topic that may help you:

* Run your tax return with and without the IRA contribution to see how much you will save in taxes, then determine if it is worthwhile to contribute to 2011, or to designate 2012 for the pay-in. You can contribute to both years from January 1st thru April 17th) If your income was low (out of work, etc.) in 2011, you may wish to split your contribution into 2011 and 2012, depending on your income forecast for 2012.

Markets Hit Speed Bump - Retirement Planning Study

Retirement Income Planning - Market Linked CDs
(Risks you face in funding your retirement income)

The financial markets hit a rather nasty speed bump yesterday, as the overnight (Monday) sell-off in the Asian markets moved West into Europe and then onto our shores. Foreign markets fell about twice what we experinced (Dow off 1.4%, SP500 down 1.6% and Nasdaq off 1.4%). Financial stocks, which led the market's rather robust 2012 start, suffered 1.5% to 2% lower. Still one day's action does not dictate a trend, but it bears watching closer. Commodities followed stocks down moreso, but bonds gained some steam as interest rates fell. We are busy watching the charts and allocating to cash or stronger market areas. Your portfolio positioning is ever important now, since you no doubt have some gains to crow about this year, and you may need a strategy to hold onto a few of them. Today prices are back up 1/2% or so. Gold and silver up also.

Stock Market Doubles since 2009.

The stock market hit the level of 13,000 last week, and that marks a double in price from the bear market lows registered March 6, 2009 around Dow 6,500. With such rapid movements and swings in stocks prices, this causes people to overeact and emotionally make decisions that are harmful to their finances. Question: what were your thoughts back in late 2008-early 2009?  Did you sell, buy, allocate money to cash, reballance to a pre-determined allocation across stocks, bonds and cash? Or did you have the nerve and fortitude to just stay put and not worry about it? I reported last blog that bonds and cash do deserve a portion of your investments, especially if your are nearing retirement age. The "safe money" strategies that I've written about should be considered seriously: we never know when the next 30% - 40% - 50% decline in stocks will start, and it would be VERY ill-timed to start your retirement income plan at the depths of a nasty market bottom. Being married to your spouse is great, but being "married" to the stock market with too much risk could result in a nasty financial divorce.