Asset Allocation Management Without Mutual Funds
By: Steve Selengut
Many Investment Gurus, with a straight face and a gleam in their eye, will insist that successful investing is a function of expansive research, skillful market timing, and detailed technical analysis. Others emphasize fundamental information about companies, industries, and markets. But trends and numbers are secondary to a thorough understanding of the basic principles of Investing and Management, and their interrelationships. The ingredients for a successful investment portfolio are these: stubborn belief in the Quality, Diversification, and Income trinity from Investments 101, and operations that employ the Planning, Leading, Organizing, and Controlling skills introduced in Freshman Management. Here are some things to keep in mind while you season your experience with patience and marinate your investment process with discipline:
* A viable Investment Program begins with the private development of an Investment Plan. The first step is the identification of personal goals and objectives and a time frame for goal achievement. The end result should be a near autopilot, long-term and increasing, retirement income. Asset Allocation is used to structure the portfolio so that it operates in a goal directed manner. The finished Plan must be flexible in design, based upon reasonable expectations, simple in structure and operation, and easy to supervise.
* Use a "cost based" Asset Allocation Model. Although most of the Investment World operates on a Market Value basis for everything from performance analysis to Asset Allocation and Diversification decision modeling, you will improve your long-term results and stay within your allocation and diversification guidelines better by using a system based upon Working Capital. This widely unknown Asset Allocation "model" takes the hype out of daily stock market reporting and keeps the income investor's focus on appropriate statistics.
* Control your emotions, among other things. Clearly, fear and greed are the two that require the most control in the investment environment... particularly in these days of a reckless media, Internet empowered scam merchants, high-speed information gathering/processing, and cheap personalized trading capabilities. Love and hate need to be dealt with as well, but there are fewer out-of-body influences on these. Only strictly disciplined decision makers need apply for your Investment Management position... and you may not be the ideal candidate. Investment Management is a continual responsibility, not a weekend and occasional evenings avocation.
* Avoid hindsightful analysis, and uninformed (or salesperson) criticism. It is painfully comical how hindsight has taken over in our society... in sports, finance, politics, and the professions, everywhere... everyone you hear is second-guessing and finger pointing. No one is willing to take responsibility for their own actions and everyone is willing to sue whoever coulda', woulda' or shoulda' prevented whatever happened. Investors cannot afford to be Little League crybabies. Make one of the three basic decisions (which are?) and don't look back. No person or program can predict the future, and your portfolio requires management today. The playing field for the investment game is uncertainty.
* Establish a profit-taking target for every security you purchase. The purpose of investing is to make more money than you could in a guaranteed, non-negotiable instrument. This larger money making expectation comes with an assumption of some form of risk... there are several, and its "in there" in all investments. In Equities, set a reasonable profit target and take less if you can get it quickly. With income investments, never say no to a profit equal to a year's income, or 10% if you like round numbers. There are always new investment opportunities, and there is no such thing as a bad profit... or a good loss.
* Examine Market Value numbers at intelligent intervals. Frequent examination is stressful and non-productive. There are no averages or indices that compare with a properly diversified Investment Portfolio, particularly if your Equity selections are screened for Quality and Income. Investing is a long-term endeavor, and neither Shock(sic) Market symbols nor current yields operate on a calendar year schedule. Look at market peaks and troughs over significant time periods that include "cycles"... and do separate your analysis by class.
* Avoid what the crowd is doing and shun investment products. Consumers buy products; Investors buy securities. The crowd is driven by the very emotions that you must learn to control. Stay focused on your plan; analyze your annual income and trading statistics. Buy and hold creates more real tax problems than real millionaires, and gimmicks and fads last just slightly longer than spring fashions. Always buy good stuff on bad news and sell into good news announcements.
* Don't try to save the world with your investment decisions. Never limit your investment opportunities artificially. Votes work better when it comes to changing your world, and corporations should not be the targets of your political hates... get rid of incumbents, state and local, until there are changes in the tax code, social security, tort law, environmental issues, etc. In the meantime, invest with your head, not your heart. The business of a capitalist society is...
* Keep in mind that you need Income to pay the bills, and that your cost of living in retirement will be higher than you think. If you insist on some income from every Equity security you ever own, and beat-the-bank income from income securities, you will obtain two important things: An annually increasing cash flow that will rise at a rate greater than most normal inflation rates, and a higher quality investment portfolio for better long-term investment performance. (If you use a cost based Asset Allocation model with at least 30% invested in income securities and no open end Mutual Funds or Index ETFs.) Never settle for tiny short-term yields or get hooked on those that are unsustainably high.
* Investing is not a competitive event, ever. You don't need to beat the market. You need to accomplish a set of personalized goals. Not even your twin's portfolio should be the same as yours. The faster you run, the less likely it is that you will succeed over time. Big risks, foolproof gimmicks, and exotic computer programs occasion more failures than success stories. Remember the Investment gods? They created Stocks and Bonds... only Stocks and Bonds!
* Avoid Unrealized Gains, Embrace Volatility, Increase Annual Income, and remember that all key investment moments are only visible in rear view mirrors. Most unrealized gains become Schedule D realized losses. As of today there has never been a correction (rally) that has not succumbed to the next rally (correction). Only an increasing income level can beat back inflation... a bigger market value number just doesn't do it.
Showing posts with label investment. Show all posts
Showing posts with label investment. Show all posts
Tuesday, December 16, 2008
Investment, investation
Asset Allocation Management Without Mutual Funds
By: Steve Selengut
Many Investment Gurus, with a straight face and a gleam in their eye, will insist that successful investing is a function of expansive research, skillful market timing, and detailed technical analysis. Others emphasize fundamental information about companies, industries, and markets. But trends and numbers are secondary to a thorough understanding of the basic principles of Investing and Management, and their interrelationships. The ingredients for a successful investment portfolio are these: stubborn belief in the Quality, Diversification, and Income trinity from Investments 101, and operations that employ the Planning, Leading, Organizing, and Controlling skills introduced in Freshman Management. Here are some things to keep in mind while you season your experience with patience and marinate your investment process with discipline:
* A viable Investment Program begins with the private development of an Investment Plan. The first step is the identification of personal goals and objectives and a time frame for goal achievement. The end result should be a near autopilot, long-term and increasing, retirement income. Asset Allocation is used to structure the portfolio so that it operates in a goal directed manner. The finished Plan must be flexible in design, based upon reasonable expectations, simple in structure and operation, and easy to supervise.
* Use a "cost based" Asset Allocation Model. Although most of the Investment World operates on a Market Value basis for everything from performance analysis to Asset Allocation and Diversification decision modeling, you will improve your long-term results and stay within your allocation and diversification guidelines better by using a system based upon Working Capital. This widely unknown Asset Allocation "model" takes the hype out of daily stock market reporting and keeps the income investor's focus on appropriate statistics.
* Control your emotions, among other things. Clearly, fear and greed are the two that require the most control in the investment environment... particularly in these days of a reckless media, Internet empowered scam merchants, high-speed information gathering/processing, and cheap personalized trading capabilities. Love and hate need to be dealt with as well, but there are fewer out-of-body influences on these. Only strictly disciplined decision makers need apply for your Investment Management position... and you may not be the ideal candidate. Investment Management is a continual responsibility, not a weekend and occasional evenings avocation.
* Avoid hindsightful analysis, and uninformed (or salesperson) criticism. It is painfully comical how hindsight has taken over in our society... in sports, finance, politics, and the professions, everywhere... everyone you hear is second-guessing and finger pointing. No one is willing to take responsibility for their own actions and everyone is willing to sue whoever coulda', woulda' or shoulda' prevented whatever happened. Investors cannot afford to be Little League crybabies. Make one of the three basic decisions (which are?) and don't look back. No person or program can predict the future, and your portfolio requires management today. The playing field for the investment game is uncertainty.
* Establish a profit-taking target for every security you purchase. The purpose of investing is to make more money than you could in a guaranteed, non-negotiable instrument. This larger money making expectation comes with an assumption of some form of risk... there are several, and its "in there" in all investments. In Equities, set a reasonable profit target and take less if you can get it quickly. With income investments, never say no to a profit equal to a year's income, or 10% if you like round numbers. There are always new investment opportunities, and there is no such thing as a bad profit... or a good loss.
* Examine Market Value numbers at intelligent intervals. Frequent examination is stressful and non-productive. There are no averages or indices that compare with a properly diversified Investment Portfolio, particularly if your Equity selections are screened for Quality and Income. Investing is a long-term endeavor, and neither Shock(sic) Market symbols nor current yields operate on a calendar year schedule. Look at market peaks and troughs over significant time periods that include "cycles"... and do separate your analysis by class.
* Avoid what the crowd is doing and shun investment products. Consumers buy products; Investors buy securities. The crowd is driven by the very emotions that you must learn to control. Stay focused on your plan; analyze your annual income and trading statistics. Buy and hold creates more real tax problems than real millionaires, and gimmicks and fads last just slightly longer than spring fashions. Always buy good stuff on bad news and sell into good news announcements.
* Don't try to save the world with your investment decisions. Never limit your investment opportunities artificially. Votes work better when it comes to changing your world, and corporations should not be the targets of your political hates... get rid of incumbents, state and local, until there are changes in the tax code, social security, tort law, environmental issues, etc. In the meantime, invest with your head, not your heart. The business of a capitalist society is...
* Keep in mind that you need Income to pay the bills, and that your cost of living in retirement will be higher than you think. If you insist on some income from every Equity security you ever own, and beat-the-bank income from income securities, you will obtain two important things: An annually increasing cash flow that will rise at a rate greater than most normal inflation rates, and a higher quality investment portfolio for better long-term investment performance. (If you use a cost based Asset Allocation model with at least 30% invested in income securities and no open end Mutual Funds or Index ETFs.) Never settle for tiny short-term yields or get hooked on those that are unsustainably high.
* Investing is not a competitive event, ever. You don't need to beat the market. You need to accomplish a set of personalized goals. Not even your twin's portfolio should be the same as yours. The faster you run, the less likely it is that you will succeed over time. Big risks, foolproof gimmicks, and exotic computer programs occasion more failures than success stories. Remember the Investment gods? They created Stocks and Bonds... only Stocks and Bonds!
* Avoid Unrealized Gains, Embrace Volatility, Increase Annual Income, and remember that all key investment moments are only visible in rear view mirrors. Most unrealized gains become Schedule D realized losses. As of today there has never been a correction (rally) that has not succumbed to the next rally (correction). Only an increasing income level can beat back inflation... a bigger market value number just doesn't do it.
By: Steve Selengut
Many Investment Gurus, with a straight face and a gleam in their eye, will insist that successful investing is a function of expansive research, skillful market timing, and detailed technical analysis. Others emphasize fundamental information about companies, industries, and markets. But trends and numbers are secondary to a thorough understanding of the basic principles of Investing and Management, and their interrelationships. The ingredients for a successful investment portfolio are these: stubborn belief in the Quality, Diversification, and Income trinity from Investments 101, and operations that employ the Planning, Leading, Organizing, and Controlling skills introduced in Freshman Management. Here are some things to keep in mind while you season your experience with patience and marinate your investment process with discipline:
* A viable Investment Program begins with the private development of an Investment Plan. The first step is the identification of personal goals and objectives and a time frame for goal achievement. The end result should be a near autopilot, long-term and increasing, retirement income. Asset Allocation is used to structure the portfolio so that it operates in a goal directed manner. The finished Plan must be flexible in design, based upon reasonable expectations, simple in structure and operation, and easy to supervise.
* Use a "cost based" Asset Allocation Model. Although most of the Investment World operates on a Market Value basis for everything from performance analysis to Asset Allocation and Diversification decision modeling, you will improve your long-term results and stay within your allocation and diversification guidelines better by using a system based upon Working Capital. This widely unknown Asset Allocation "model" takes the hype out of daily stock market reporting and keeps the income investor's focus on appropriate statistics.
* Control your emotions, among other things. Clearly, fear and greed are the two that require the most control in the investment environment... particularly in these days of a reckless media, Internet empowered scam merchants, high-speed information gathering/processing, and cheap personalized trading capabilities. Love and hate need to be dealt with as well, but there are fewer out-of-body influences on these. Only strictly disciplined decision makers need apply for your Investment Management position... and you may not be the ideal candidate. Investment Management is a continual responsibility, not a weekend and occasional evenings avocation.
* Avoid hindsightful analysis, and uninformed (or salesperson) criticism. It is painfully comical how hindsight has taken over in our society... in sports, finance, politics, and the professions, everywhere... everyone you hear is second-guessing and finger pointing. No one is willing to take responsibility for their own actions and everyone is willing to sue whoever coulda', woulda' or shoulda' prevented whatever happened. Investors cannot afford to be Little League crybabies. Make one of the three basic decisions (which are?) and don't look back. No person or program can predict the future, and your portfolio requires management today. The playing field for the investment game is uncertainty.
* Establish a profit-taking target for every security you purchase. The purpose of investing is to make more money than you could in a guaranteed, non-negotiable instrument. This larger money making expectation comes with an assumption of some form of risk... there are several, and its "in there" in all investments. In Equities, set a reasonable profit target and take less if you can get it quickly. With income investments, never say no to a profit equal to a year's income, or 10% if you like round numbers. There are always new investment opportunities, and there is no such thing as a bad profit... or a good loss.
* Examine Market Value numbers at intelligent intervals. Frequent examination is stressful and non-productive. There are no averages or indices that compare with a properly diversified Investment Portfolio, particularly if your Equity selections are screened for Quality and Income. Investing is a long-term endeavor, and neither Shock(sic) Market symbols nor current yields operate on a calendar year schedule. Look at market peaks and troughs over significant time periods that include "cycles"... and do separate your analysis by class.
* Avoid what the crowd is doing and shun investment products. Consumers buy products; Investors buy securities. The crowd is driven by the very emotions that you must learn to control. Stay focused on your plan; analyze your annual income and trading statistics. Buy and hold creates more real tax problems than real millionaires, and gimmicks and fads last just slightly longer than spring fashions. Always buy good stuff on bad news and sell into good news announcements.
* Don't try to save the world with your investment decisions. Never limit your investment opportunities artificially. Votes work better when it comes to changing your world, and corporations should not be the targets of your political hates... get rid of incumbents, state and local, until there are changes in the tax code, social security, tort law, environmental issues, etc. In the meantime, invest with your head, not your heart. The business of a capitalist society is...
* Keep in mind that you need Income to pay the bills, and that your cost of living in retirement will be higher than you think. If you insist on some income from every Equity security you ever own, and beat-the-bank income from income securities, you will obtain two important things: An annually increasing cash flow that will rise at a rate greater than most normal inflation rates, and a higher quality investment portfolio for better long-term investment performance. (If you use a cost based Asset Allocation model with at least 30% invested in income securities and no open end Mutual Funds or Index ETFs.) Never settle for tiny short-term yields or get hooked on those that are unsustainably high.
* Investing is not a competitive event, ever. You don't need to beat the market. You need to accomplish a set of personalized goals. Not even your twin's portfolio should be the same as yours. The faster you run, the less likely it is that you will succeed over time. Big risks, foolproof gimmicks, and exotic computer programs occasion more failures than success stories. Remember the Investment gods? They created Stocks and Bonds... only Stocks and Bonds!
* Avoid Unrealized Gains, Embrace Volatility, Increase Annual Income, and remember that all key investment moments are only visible in rear view mirrors. Most unrealized gains become Schedule D realized losses. As of today there has never been a correction (rally) that has not succumbed to the next rally (correction). Only an increasing income level can beat back inflation... a bigger market value number just doesn't do it.
Tuesday, December 2, 2008
investment, investment, investment
How to Increase Your Income, Lower Your Taxes and Help Your Favorite Charity
By: Robert D.
Cavanaugh, CLUGiven the fact that most seniors are interested in a secure income, reducing risk and lowering taxes, here is a planning technique to consider if you are trying to increase your income.
Maybe you have a CD that is coming up for renewal and you discover the rate is going to be lower. You could have some stocks or mutual funds that were invested for growth and are thinking about selling some off and re-investing in something that would pay you an income. The only reason you haven't sold them is that you don't want to pay the capital gain.
I would suggest including a charitable gift annuity in your list of options.
A charitable gift annuity is a combination of a gift to charity and an annuity. For older people, annuity rates may be 8%, 9% or even higher. Since part of the annuity payment is a tax free return of principal, the gift annuity may provide you with a substantial income. The combination of partially tax free income and the initial charitable deduction makes this planning device attractive.
While this arrangement has its own unique benefits, the rate of return is less than if you had bought a commercial immediate annuity. Therefore, your decision to use a gift annuity should include a desire to eventually leave money to a qualified charitable organization that you have an interest in, such as a church, school, hospital, etc.
Gift annuities are easy to set up. You simply transfer property to the charity and the charity promises to pay a given amount monthly, quarterly, semi-annually or annually to you for as long as you live. Alternatively, you could elect to have the payments paid to you and another person for as long as you both live. Or you could elect to have the payments made to you for the rest of your life and then to the second person for the rest of their life. But the maximum number of people per gift annuity is two.
Gift annuity rates are set by the American Council on Gift Annuities. Charities don't have to use these rates, but most do. So you don't have to out shopping for the best rate. Make your choice based on the charity that you would like to support.
There are two tax issues that you should take into consideration when comparing a gift annuity to your other alternatives.
The first is that if you fund the gift annuity with cash, part of the payment you receive is taxed (as ordinary income) and part of it is not taxed as it is treated as a return of principal. If you fund it with appreciated property, and are the recipient of the income, part will be taxed as capital gain, part as ordinary income and part could be treated as a return of principal and not taxed. However, if you live past your life expectancy, all later annuity payments will be ordinary income.
The second tax issue is that when you give the charity your asset in exchange for a life income, you get a large income tax deduction. For most people, this income tax deduction is so big it cannot be taken in one year. So there are provisions to spread the deduction out over the year of your donation and five more. Your accountant can tell you if this will eliminate income taxes for the next 6 years or not. Chances are good that it will.
Please note that I am only giving general guidelines about taxation. Before you set up a gift annuity, you should sit down with your tax advisor to determine the exact tax ramifications for your situation.
There are a number of charitable gift annuity options and applications. This brief overview has given you some of the basics. If this seems like it may fit, contact the charitable organization of your choice and get a proposal. Then sit down with your accountant and financial planner and have them help you compare a gift annuity with your other options.
Maybe you have a CD that is coming up for renewal and you discover the rate is going to be lower. You could have some stocks or mutual funds that were invested for growth and are thinking about selling some off and re-investing in something that would pay you an income. The only reason you haven't sold them is that you don't want to pay the capital gain.
I would suggest including a charitable gift annuity in your list of options.
A charitable gift annuity is a combination of a gift to charity and an annuity. For older people, annuity rates may be 8%, 9% or even higher. Since part of the annuity payment is a tax free return of principal, the gift annuity may provide you with a substantial income. The combination of partially tax free income and the initial charitable deduction makes this planning device attractive.
While this arrangement has its own unique benefits, the rate of return is less than if you had bought a commercial immediate annuity. Therefore, your decision to use a gift annuity should include a desire to eventually leave money to a qualified charitable organization that you have an interest in, such as a church, school, hospital, etc.
Gift annuities are easy to set up. You simply transfer property to the charity and the charity promises to pay a given amount monthly, quarterly, semi-annually or annually to you for as long as you live. Alternatively, you could elect to have the payments paid to you and another person for as long as you both live. Or you could elect to have the payments made to you for the rest of your life and then to the second person for the rest of their life. But the maximum number of people per gift annuity is two.
Gift annuity rates are set by the American Council on Gift Annuities. Charities don't have to use these rates, but most do. So you don't have to out shopping for the best rate. Make your choice based on the charity that you would like to support.
There are two tax issues that you should take into consideration when comparing a gift annuity to your other alternatives.
The first is that if you fund the gift annuity with cash, part of the payment you receive is taxed (as ordinary income) and part of it is not taxed as it is treated as a return of principal. If you fund it with appreciated property, and are the recipient of the income, part will be taxed as capital gain, part as ordinary income and part could be treated as a return of principal and not taxed. However, if you live past your life expectancy, all later annuity payments will be ordinary income.
The second tax issue is that when you give the charity your asset in exchange for a life income, you get a large income tax deduction. For most people, this income tax deduction is so big it cannot be taken in one year. So there are provisions to spread the deduction out over the year of your donation and five more. Your accountant can tell you if this will eliminate income taxes for the next 6 years or not. Chances are good that it will.
Please note that I am only giving general guidelines about taxation. Before you set up a gift annuity, you should sit down with your tax advisor to determine the exact tax ramifications for your situation.
There are a number of charitable gift annuity options and applications. This brief overview has given you some of the basics. If this seems like it may fit, contact the charitable organization of your choice and get a proposal. Then sit down with your accountant and financial planner and have them help you compare a gift annuity with your other options.
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