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Welcome to the Whole-Hearted-Way e-newsletter. I hope you enjoy this information and the practical tips. Feel free to email me with any topics you would like to see covered or great resources you would like to share. You may subscribe or unsubscribe at the bottom. Enjoy! Losing Money and Loving It!That's right! I'm losing money and you should be, too. Here is why- a good diversified portfolio should have winners and losers in it at all times. If you have all winners all the time, then you are taking unnecessary risk because you are concentrated in one asset class. Just take a look at all the real estate developers that made hoards of money. Where are they now? Last time I looked in the news, there is talk of a government bail-out. You can avoid the same disaster in your own investment portfolio. Let's look at some smart and dumb strategies: Situation-You look at your brokerage statement and panic. It keeps going down in value! Dumb- You sell all your losers and stay in cash. Don't do it! You not only will pay a transaction fee to take a tax loss that will make your loss even higher, but you moved into cash where it will be hard to keep up with taxes and inflation. Smart- You look at the particular assets that are losing and see if you truly have a loss since you acquired it. If not, you keep your paper loss. If it has been a consistent loser within the last three out of five years compared to its peers, then you sell into the same asset class but with a better long term performance record. This is a good example of investing correctly for the long term and sticking to your asset allocation strategy even in a down market. Dumb-You panic and stop contributing money to your plan and spend the cash or keep it in a money market. Smart- You make sure your money is diversified in different asset classes and if so, you put new cash into those that are going down. You essentially are buying bargains to increase your potential future capital gains. Great strategy! Situation- You retired and your income from the fixed income portion of your portfolio is going down! Dumb- You take all of your retirement income from the fixed income portion of your portfolio and switch more of the equity portion that is going down in value to safer investments. Smart-You take no more than a 4% withdrawal from your portfolio and you take dividends from your fixed income portion and long term capital gains from your equity portion. This keeps your taxes down and your net after-tax income high. You stick with your asset allocation strategy and review the long term performance of each security that you hold. If it is just one or two bad years, you don't sell, because you are in it for the long term. Great plan! But don't take my word for it. Here is a quote from John Myers President and CEO (retired) of GE Asset Management in a letter to the editor in the Wall Street Journal, 4/7/08 - "I was surprised and disappointed that the Journal opposes the PBGC's move to a more diversified asset allocation. As the former CEO of General Electric's pension plan, I followed the investment philosophy of Jeremy Siegel rather than an academic like Zvi Bodie, whom you mention. GE results are an example of how a well-diversified portfolio will perform over the long term. In 1986 when I joined GE pension, assets were $11 billion, the plan was underfunded, and GE was making annual contributions. When I retired 21 years later, assets were $56 billion and the plan was $12 billion overfunded despite more than $30 billion paid out to retirees and zero cash contributions from GE." Coaching Question- Do you have a diversified portfolio that can weather an economic recession? News Flash! - I will be holding a FREE teleclass, August 2007-- this column is produced by Whole-Hearted-Way and provided by Fern Alix LaRocca CFP® EA
fern@wholeheartedway.com |
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