Investing in Turbulent Times

Posted on June 24th, 2008 in Investments, Newsletter Articles by wayne

You may have substantial savings for your children’s education and/or your retirement. You probably have savings in both taxable accounts and tax deferred retirement accounts such as a 401(k).

With the extremely volatile stock markets and low current interest rates, how should you invest your savings? Here are seven ways to increase your investment returns in these turbulent times.

  1. Invest in different types of assets – With the current stock market volatility, you may be tempted to get out of the market and put everything in cash. If you do this today, with money market rates at 2.25% and the inflation rate at 4%, you will be guaranteed a negative “real rate of return.” However, by investing in a variety of different asset classes, you will lower your portfolio risk and, over time, have a higher investment return.
  2. Allocate all of your liquid assets – Common investment wisdom recognizes that asset allocation can produce up to 90% of your total investment return. When choosing different asset classes, be sure to consolidate all of your financial assets, including your taxable accounts, your 401(k) and IRA accounts, deferred annuities and even rental properties. Often, financial professionals consider only the assets that they are managing when they provide asset allocations. This limited asset allocation approach may provide higher risks and lower total returns on your consolidated portfolio.
  3. Pay attention to financial trends – Don’t try to time when the markets will go up or down. However, pay close attention to current market cycles. Today, with a volatile stock market and a declining business cycle, it may be prudent to reduce your equity allocation. If inflationary pressures remain for the foreseeable future, consider having a portion of your portfolio in an inflationary hedge such as a gold fund or a bond mutual fund investing in Treasury Inflation Protected Securities (TIPS).
  4. Learn to build “ladders” – Money market funds are typically yielding 2.25% or less. If you are sitting on cash that you won’t need in the short term, improve your yield by 1% or more with a short term CD ladder. Buy a 3 month, 6 month, 9 month and 12 month CD, with 25% of your cash in each CD. This approach could increase your annual yield to 3.5%. Plus, if interest rates start increasing, every 3 months you will be able to invest 25% of your cash funds at a higher interest rate.
  5. Consider a Mid Cap allocation – Since 1981, when Mid Cap stocks were first tracked as a separate asset class, the Mid Cap index has performed significantly better than both the Large Cap and Small Cap stock indexes. Year to date, the S&P 400 Mid Cap index is out-performing the S&P 500 Large Cap index by over 10% and the S&P Small Cap 600 index by over 3%. Including a Mid Cap index fund with your equities may improve your total return.
  6. Reduce your taxes on investments – Pay attention to which accounts hold your investments. Keep tax-efficient investments, such as municipal bonds and index stock funds in taxable accounts. Tax-inefficient investments, such as actively managed mutual funds and investments that pay non-qualified dividends (example: REITs), should be kept in tax free Roth accounts or tax deferred accounts such as a 401(k).
  7. Minimize your investment fees – Investment sales expense (loads and 12b-1 fees), mutual fund operating expenses, brokerage trading costs and asset management fees reduce your total return. A low fee approach can substantially increase your investment returns. Over a 15 year period, paying an extra 1% yearly investment fee can reduce the total return on a $500,000 investment by $200,000.

In the 90s, making a decent return on your investments was easy. For the foreseeable future, you will need to pay much more attention to your investing in order to receive a reasonable investment return. More details on how to increase your investment returns are provided in Financial Abundance Guide.

Identity Theft – Could you be next?

Posted on June 24th, 2008 in Newsletter Articles, Risk Management by wayne

What is the world’s most expensive white collar crime? If you guessed drug trafficking you would be wrong. It is identity theft!

In 2008, the Federal Trade Commission predicts that 33 percent of all Americans will be the victim of some form of identity theft. When this occurs, it can easily take over 600 hours of your time to restore your identity and, depending upon the type of identity theft, it can become a personal nightmare for years.

You may not be aware that there are five types of identity theft. Most people think of financial identity theft, in which someone uses your credit cards or your bank accounts. However, of all identity theft, financial is only 22% of the total and is the easiest to fix.

The biggest type of identity theft is criminal or character identity theft. This occurs when someone uses your identity in the commission of a crime. When this happens, there may be a warrant out for your arrest that you know nothing about it until the police arrive at your door.

Medical Identity Theft is the fastest growing type. This occurs when someone uses your health insurance as their own. When this occurs, your Medical Information Bureau records can be completely altered. This type of theft can lead to you being declined for insurance coverage or, in an emergency situation, you could be administered the wrong medication or given the wrong type of blood. In some situations, Medical Identity Theft has been fatal.

Social Security is the fourth area for identity theft. This continually occurs as people come to work in the U.S. without a valid Social Security number. In one case, a woman found out that over 80 people were using her Social Security number.

The final area is Driver’s License Identity Theft. When someone has a driver’s license or state id with your information and their photo, they can open bank accounts, purchase vehicles, get speeding tickets and even DUI’s, and you can be held responsible for all of these activities.

Stealing and selling identities is a multi-billion dollar black market. Once an identity is stolen, it can be bought and sold over and over again, with multiple people in multiple locations using the same identities. Since we are all in many different databases, there is no way to prevent your identity from being stolen. You cannot control which data base with your personal information will be breached next.

The best identity theft protection is to have a service that you can rely upon to quickly restore your identity if it has been stolen. The service should include: 1) Monitoring – your accounts should be constantly monitored and you should be notified when accounts open in your name, your address changes or any other changes occur; 2) Restoration – having an experience person who will work on your behalf to restore your identity to its original form is critical; 3) Legal Protection – for emergency situations, the service should provide immediate access to attorneys who will write letters and make phone calls on your behalf.

No one is immune to identity theft. If you would like more information on what you can do to protect yourself and your family, please do not hesitate to call or email me.

This article was written by Peggy Goehringer, a Certified ID Theft and Risk Management Specialist. Peggy can be contacted by phone at 720-280-1068 or by email at peggygoehringer@aol.com