Author: Dr. Daniel Levine

Aggressively Monitor Your Investments…

…Or Pay Someone Skilled To Do So When markets are rising and amateur investors are doing very well, it’s easy to forget that protecting your assets during declining markets requires skill, discipline and constant attention. Investors need to expect and be prepared to react to fast-moving markets. No market rally is permanent and no decline lasts forever, meaning there are no investments you can buy and forget about, which many amateur investors tend to do. The pace of change in today’s markets is too great for investors to be complacent. The list of 30 individual companies that compose the Dow Jones Industrials, which are some of the largest publicly traded companies in the U.S., has changed numerous times since the Dow’s inception in 1896. Companies were removed as they declined, were acquired, went private, or simply went bankrupt, and others took their place. This is an example of the constant state of change in the markets, even among giant companies. Investing with long-term assets is not child’s play since most investors can ill-afford to lose part of their nest egg. Today’s markets are no place for dabblers that lack the time, patience, training, discipline, and diligence to do the research and invest properly. If you aren’t completely sure you have the time, expertise and experience to manage your investments clearly and with a defined purpose, it may be wise...

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Learn From Your Mistakes

One of the key differences between successful long-term investors and those who aren’t is that successful investors learn from their mistakes and make a commitment to never making the same mistake again. Even when a mistake results in a large and painful loss, it’s necessary to take a step back and review the actions that led to your loss. Learning what went wrong in your thinking or your planning must be reviewed so you can educate yourself on what to do better next time. Also, never compound the errors you made by taking bigger risks in an effort to recover your money. This is addictive gambler’s behavior, not rational and emotionless investing, which is the best way to make decisions. Determine where you went astray and ensure you avoid the same mistake in the future. Many common investing mistakes can be attributed to emotional decision-making. Whenever you make financial or investment decisions, you will have the challenge of overcoming fear and greed. Fear can cause you to run for the exits when markets decline or your portfolio starts taking losses. Greed can encourage you to chase fads and take on too much risk in the pursuit of a big score. By recognizing your emotional triggers and engaging your rational mind, you can overcome your impulses and cultivate discipline. Taking unnecessary risks can quickly destroy your portfolio. In today’s markets,...

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Portfolio Performance and Measurement Reporting

Do you receive regular portfolio performance reports (not account statements) that clearly measure your performance against the appropriate benchmarks and disclose exactly what you pay for the performance of your investments? In order to make good financial decisions, it’s important to remove emotion from the picture. The only way this can be done is to: Set clear and realistic goals Create meaningful measurement Have defined consequences for failure Most investors do not set clear and realistic goals…so there is no meaningful measurement, and no defined failures or consequences.  This contributes to decisions being emotional in nature, which is often a potentially devastating flaw.     Set Clear and Realistic Goals; Have an Investment Policy Statement An Investment Policy Statement (IPS) should contain at least the following information: The time horizon for your investment strategy The income needs from your investment amount A decision-making policy for how investments will be made An asset allocation (diversification) model your investment will follow A provision for how frequently and how your investments will be monitored and reviewed A realistic rate of return goal which is relative to an appropriate benchmark Without an IPS, there is no clear communication about what is expected and how those expectations will be met. Investing without an IPS is like driving across a foreign country with no map, no directions, and no preferred destination. It could be an...

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How Good Are Your Investments…Really?

Most investments are not very good.  One of the more common investments today is mutual funds. As a whole, mutual funds are a great idea and can work very well…but the very rich generally don’t use them. There is good reason for this. Deferred annuities are also popular. They come in many varieties and most sound too good to be true. In this case, the most successful money managers do not use them. John Bogle, Founder of Vanguard Funds, Explains the Costs of Mutual Funds John Bogle was asked by an interviewer from the TV program Frontline, “What percentage of my net growth is going toward fees in a 401(k) plan?” Bogle replied, “Well, let me give you a little longer-term example. An individual who’s 20 years old today is starting to accumulate for retirement. That person has about 45 years to go before retirement — 20 to 65 — and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that’s 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow…to around $140,000.” He continued: “Now the financial system — the mutual fund system in this case — will take about 2.5 percentage points out of that return, so you’ll have a...

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What Is Your Portfolio’s REAL Return?

To maximize investment growth over time, it’s critical to factor in the effects of fees, taxes and inflation on your returns. Many posted investment returns explicitly exclude the effects of fees, which come right off the top of each year’s gains. It’s important to dig deeper and find out how much that performance is costing you each year so you can decide which investments will serve you best. Taxes can also take a serious bite out of your investment gains each year so it’s important to structure your investments to account for taxes on capital gains, dividends, and income. Taxes should not be the primary driver of an investment strategy, but incorporating tax efficiency into your overall plan will help you keep more of what you earn. If taxes are a problem for you, structuring your investments so that taxable investments can grow in a tax-deferred account may be an option. Synergy Financial Advisors can help you with this. Inflation, which is the erosion of your purchasing power over time from increases in the cost of goods, is another insidious force that can eat away at investment growth each year. An investment strategy that fails to account for the effects of fees, taxes and inflation on overall return will severely handicap your ability to increase your wealth over time because if you do not build these factors into your...

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