January 31, 2011

Investment Options for 2011

In case you missed it, 2010 was another great investment year. The S&P 500 finished its second consecutive year with double digits gains increasing by 15.06% after being up 26.46% in 2009. The Dow Jones Industrial Average (DJIA) also had a very good 2010, and it has gained more than 80% off its March 2009 lows. These are some very impressive numbers, but what should you do now?

Well, if the last few years have not shown you that you should be invested and diversify, then I probably cannot sway you anyway. For those that do listen though...

"It is definitely hard to see what areas of the market will stage the best performance, so since almost all of you seldom make changes to your portfolios, you must continue to diversify your portfolio - if nothing else, rebalance from last year!" - January 2010

Yes, I said that last year, and I completely agree again. When you rebalance, you take money from your winners, and redistribute it across your portfolio. The winners give some money to the laggards, but your portfolio will get back to that target allocation that you set (hopefully, you have a financial adviser that is helping you make plans). Do not simply pile in to last year's winners, and hope for a repeat performance.

I have received a few emails asking about bonds and interest rates, and it should become an issue late this year or early next year. Essentially, why would someone buy a 30-year treasury bond at 4.5% or a 10 year note at 3.3% when they can buy the same things in a short period of time with a higher yield? With this in mind, I would suggest to look to other areas of fixed income for your allocation. Essentially, you want to try to limit the interest rate sensitive bonds in your portfolio if possible. A core/total bond fund, high yield bond fund, and an international bond fund should most likely all fare better than a US government bond fund this year.

For those that continue to complain about CD rates, I am sorry, but you are in for another year of pain. The Federal Reserve will most likely not raise rates until the end of the year or early next year, so money market rates and CD rates will stay extremely low.

As for the equity holdings, I have preached and preached about diversification and about my favorite area - mid caps. Make sure you have a good mix of large caps, mid caps, small caps, and international holdings in your 403(b)/457 accounts - and understand what those allocations should be.

Finally, I cannot stress enough the importance of research and seeking qualified advice. When I manage money for my clients, I look at what has changed in the market, economy, and with them. I may make numerous trades in a year or just a few, but there is always a reason behind it. I have read a number of emails that point to parents, neighbors, friends, and/or colleagues as sources of advice and information. While I am sure that all of these people mean well, the vast majority most likely do not have the experience or knowledge to really guide you through to retirement and beyond. Would you go to your bank for medical advice? So why go to your neighbor for financial advice? Find a qualified professional to help you set goals, allocations, and understand your retirement.

For 2011, Wall Street analysts are forecasting another good year in the stock market as the economy continues to improve, and I know we would all like to see continued improvement and positive returns.

January 27, 2011

Where Do We Go from Here?

I always find it interesting the emails that I receive from my "little" blog. What started as a way to help some friends has grown more than I ever thought it would.

I have received questions regarding pensions from 39 states, more WEP/GPO questions and comments than I can ever count, numerous inquiries about retirement accounts and investments, and various other subjects that range from personal to the implausible. Honestly, I really do read each and every email and try to answer them or direct them to someone who can.

I have covered many subjects on retirement accounts (403b, 457, 401k, etc.), and I can only say "save" so many times, so I have tried to answer those questions individually. If you want to see what I have written before on the subject simply use the search feature on the blog (even I do).

So, I have been gathering a few emails that mentioned topics for me to cover, and I think I will start there:
  • Investment Options for 2011 - It seems that a number of people have liked my breakdowns in previous years of the investment options for 403(b) plans, so that will be covered first.
  • Pension Options - The PLOP Discussed - I have received a few questions about the PLOP option available under the TRS of Georgia plan.
  • How Well is Georgia's TRS Plan Funded? - Numerous news articles have been highlighting the issues of pensions around the nation, so I will discuss Georgia's own TRS plan.
  • A Suggestion for Employers of (Georgia's) Educators - After talking to numerous educators over the years at various stages of their employment and retirement, I have a suggestion to pass along.
  • Arguments FOR the WEP/GPO - I can already feel my inbox filling up after this one, but unless you know the arguments for the WEP/GPO, can you really argue intelligently against it? Before I even start... I am against the WEP/GPO in almost every case.
Ok, the above is my game plan for future posts, so if your subject isn't covered, let me know. I will try to work on it individually or down the line for everyone.

Thanks for your comments, suggestions, and questions, and I wish you all only the best.