Investing for the future and retirement was simple and easy during your grandfather’s lifetime: buy a few good rock-solid, dependable stocks like Studebaker, Westinghouse or A&P grocery stores, sock a few bucks away each week in that savings account paying 3 percent compound interest down the block at the neighborhood S&L, and maybe help out Uncle Sam occasionally by purchasing a $25 Series E savings bond through payroll deduction. Oh, and don’t forget that new-fangled “guaranteed” company pension plan, which Grandpa’s employer grudgingly set up for him.
Those were the good old days, when mailing a letter cost 3 cents, a dime paid for a cup of Joe and everybody watched Ed Sullivan on their 13-inch black-and-white Magnavox consoles. It was a time when your grandfather thought he and his family were without worry; comfortable with their “retirement fund” and set for life.
Yeah, right. Welcome to the age of PCs, information processing, space exploration, medical and scientific breakthroughs, travel and leisure and consumer convenience – in a word, technology – and the new millennium.
Now, when it comes to your investment in the future and retirement, there’s a smorgasbord of choices that, without a good understanding, can tax the uninformed and unsavvy mind. Zero-coupon bonds, T-bills, derivatives, spiders, annuities, REITs, IRAs, pink sheet stocks, etc., etc., etc. and the list goes on and on like a financial filibuster. No longer will a coffee-ring stained manila envelope containing your financial future suffice; nowadays you need a portfolio.
Asset allocation – how much wealth a person is willing to put into the various options to realize the maximum gain – determines the size of the each piece of the portfolio pie. Part of determining which asset, and in which proportion, should be chosen is something called risk tolerance, since each investment option has its own relative amount of risk attached to it when it comes to making (or losing) money.
That’s where investment planners, financial advisors and other savvy money masters – the people who understand all of this, keeping it in a perspective free of “emotional baggage” (my grandfather had that stock, so should I) – can do a world of good.
“The best thing is to have a plan or strategy that takes care of itself,” explained Brian Loy, president and owner of Sage Financial Advisors in Reno. “Life is not in a straight line, [so] by having a plan, you have a direction to go in response to whatever challenges lie ahead.”
Now that the new millennium’s first two roller coaster years are done and over with, but not forgotten, the experts are ready and willing to give their thoughts and opinions about this, the third year. Many advisors readily agree the sounds echoing down financial hallways following the September 11 attacks resembled Reveille, not Taps. They say the wake-up call jolted investors who realized they need to focus more on planning their investment strategies, including hefty doses of diversification.
“What we’ve seen since the bubble burst is that it’s back to the basics of investing, because many people with nice net worths said, ‘What happened? Where do we go from here?’,” said Michael “Mick” Birge, director of the Fair, Anderson & Langerman Investment Advisors LLC office in Las Vegas. “Some people were more heavily allocated into technology than they thought they were. When the market was going up, everything was fine, but they didn’t stop to look at their portfolios. Now they’re paying more attention to them, which is making my job easier.”
Despite the stock market’s sudden, but expected, downturn and subsequent rebound following September 11, most advisors believe that when it comes to revenue generation, stocks, mutual funds, real estate and annuities will perform adequately in 2002, but the sentiment toward bonds remains mixed, especially fixed-income investment bonds. As for metals and commodity futures, don’t bother, say most analysts we surveyed. One labeled metals as “storers of wealth” not “generators of wealth,” while another said it’s acceptable to keep a very small percentage in a portfolio. Beth Walker, a chartered retirement planning counselor and partner in SageMark Consulting of Las Vegas said, “Commodities are speculation for when you get to the top of the [investment] pyramid. You use them only if you can afford to lose them.”
Paragon Asset Management Co. of Henderson bucks the trend toward favoring stocks in 2002 and, instead, favors municipal bonds as its favorite investment tool because of their favorable tax treatment. “If I had a million dollars to invest, I’d put three-quarters of it in muni bonds because they’re a steal right now,” advised Ted Schlazer, a co-owner of Paragon. Bob Kasner, also a Paragon co-owner, agrees munis look good, but leans a little more toward stocks as his preference in 2002.
Mutual funds, in general, get high marks as investment options for the year, but some advisors warn against putting assets in sectors that are either volatile or have tracked poorly. “Mutual funds are a fine way to invest in a portfolio of stocks,” said Mike PeQueen, senior portfolio manager for Prudential Financial in Las Vegas. “They should be more diversified, with small and mid-cap stocks and not in the technology, healthcare or financial areas. I wouldn’t bet my future in any one area.”
A new (created in 1993) type of mutual investment gaining in popularity is the S&P Depositary Receipt, also known as SPDR or “spider.” Traded on the American Stock Exchange, spiders are a single unit of ownership in the S&P 500 contained in a unit investment trust called the SPDR Trust. For each spider unit held, owners receive a quarterly dividend based on the dividends paid by the stocks in the S&P 500. According to Paragon’s Schlazer, “Since they’re bought and sold like stock, spiders are a safe way to go.”
In times of certainty, a three-to-six-month supply of cash is a must if an emergency should arise. Likewise, in times of uncertainty, cash and money market funds grow in importance as a “holding fund,” but only if the markets stay flat or turn downward. To make that asset work best, cash-heavy investors need to put their money to work at the beginning of what appears to be a sustained upswing. After all, they don’t want to be hanging onto the corral after the bull has charged out of the gate.
With the United States officially in a recession and the federal government’s stimulus package in place, the economy will be poised for a reversal soon, which could give rise to inflationary tendencies. When that occurs, bonds with values that rise equal to inflation will look more appealing than their brethren.
Also, with prices down and interest rates at nearly a 30-year low, real estate, both residential and commercial, in high growth areas are attractive investment vehicles. One option that has had its ups-and-downs is real estate investment trusts, REITs, which are being recommended for those who want to diversify their portfolio with a piece of terra firma. “Over time, real estate has been a solid investment to make, whether it’s raw or improved land, commercial buildings, your home or rental properties,” related Birge. “REITS really are a good vehicle in a portfolio mix.”
Others agree. “I like real estate, especially in Las Vegas, because it always seems to do well here, but the client needs to understand that it’s a long-term holding. I like REITs too. They’re definitely good,” said Bonnie Houldsworth, co-owner of Houldsworth, Russo & Co., a Henderson CPA firm. “As long as you’re not next to a nuclear dump, real estate prices should grow,” advised Loy. “Commercial real estate goes in cycles and is very soft now, but there are opportunities for investors and, for now, financing is cheap.” Added Kasner, “[Real estate] trusts are good, but a little cyclical.”
Nobody can predict what the year holds for people and their investments, but one thing is sure: “What’s most important is that as we come out of a bear market, there were lessons learned. Any mistakes that were made shouldn’t be repeated.” PeQueen said. “There’s good news ahead, but be diversified and cautious.”
