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Jerry Jones
2008-07-01 15:11:00
Where do we go from here?
These are certainly confusing, if not difficult times for many investors. However, uncertainty has always been a part of investing. The problems just seem magnified now. You might want to take this opportunity to remember some of the basic principals that can help us in good times and in bad. Here are a few: Keep saving. If you are still in the accumulation phase of your investing a life, don’t quit saving now. Investment returns are meaningless if the rate we save is not adequate to build a nest egg to live on during retirement. Investing on a regular basis, will help smooth out the bumps in the road because you will be buying when prices are down and up. Asset Allocation is Key. Since Brinson, Singer & Beebower published their 1991 study “Determinants of Portfolio Performance” it has generally been accepted that portfolio asset allocation is the most important long-term determinant of investment results. Compared to market timing and stock selection, asset allocation accounts for over 90% of a portfolio’s investment results. Review your goals, risk tolerance and time horizon. It’s wise to consider asset allocation in light of a person’s goals, risk tolerance and time horizon. Take the time to reconsider these things and see that your investments fit. Be diversified. In my opinion, properly diversified portfolio should be spread across a broad group of asset classes. The reason is correlation. A portfolio made up of investments that all rise and fall with each other is not diversified and is more volatile. Consider investments that tend to zig when others zag. This will reduce volatility. A current example would be commodities. Real estate and timber are asset classes that add diversification. Another, believe it or not, is life insurance. Consider Taxes. Try to consider the tax implications of your financial decisions. It’s usually better to defer paying taxes to a later date. This isn’t always true. Sometimes a Roth IRA is preferable to a Traditional IRA. Talk about it with your tax advisor or Certified Financial Planner ™ Professional. Protect your assets. Consider using long term care insurance to pay for nursing home care. Other insurance options may allow you to reduce the risk of outliving your assets or pay the costs associated transferring your estate to your heirs. Live well now. Who cares how wealthy you are if you’re miserable or your health is so bad you can’t enjoy life. Consider changes to your life, health and relationships that will increase happiness and the enjoyment of the things you have tangible and intangible.
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