Objective information about retirement, financial planning and investments


Is This a Good Investment?


When people learn that I am a financial advisor, they often ask me if a particular stock or mutual fund is a good investment.


 My answer is always “it depends.” I answer this way for two reasons:

    • The better question is not whether fund XYZ is a good investment, but rather whether fund XYZ is a good fit with this person’s overall financial and investment strategy. Knowing nothing about their financial situation there is no way to give them the good answer they deserve.
    • From a selfish perspective, I don’t want to assume the liability of providing off the cuff financial advice. I’ve read about several financial advisors who have been sued for providing free advice of this type by investors who followed it and subsequently lost money. 

Over the years I have encountered many folks who have an array of various stocks, mutual funds, and other investments scattered over a variety of accounts. There is no overall plan for their portfolio. Rather they have read about this fund, a friend talked up that stock, etc. They have a collection of investments or what I call “financial clutter.” The investments are not in any way aligned with their financial goals or any sort of overall financial plan. There is often a high degree of overlap among holdings and not much real diversification. This can place their portfolio at significant risk during a market downturn.

Is this a good investment? A simple question, maybe. The answer is not simple, however.

Feel free to contact me with questions about investing and your investments.

Please check out our Resources page for links to some additional tools and services that might be beneficial to you.

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Financial Clutter May be Hazardous to Your Wealth


When dealing with new clients and prospects, I often encounter financial clutter. I define financial clutter as a lot of


“financial stuff.” Just like that overstuffed closet or garage, if you don’t sort through it you won’t know what you have.

The two most common forms of financial clutter I encounter are:

Multiple, overlapping accounts. Perhaps a couple might have 3-4 IRA accounts, a 401(k) from a current job and one or two others from prior jobs, a brokerage account, an annuity, etc.

Often in addition to many accounts, the client or prospect will have what can best be described as a collection of various investment vehicles. Mutual funds, individual stocks, annuity sub-accounts.

One problem in both cases is that for most people it is just too hard to keep track of all these investment holdings, and more importantly these holdings rarely if ever are viewed as a total investment portfolio. Whether or not someone has the knowledge or expertise, proper review and monitoring of one’s investments takes some amount of time. As busy as we all are with work, family, and life in general managing our finances can get pushed way down the list.

Another problem is that a collection of investments may turn out to be improperly allocated for your needs. A number of years ago I was working with a client to do a financial planning review. He felt that he was diversified given that he had 19 mutual funds. In analyzing the funds for overlap of holdings, we found that all 19 held Microsoft, Intel, Cisco, and a number of other stocks. Almost all of the funds were large cap growth funds. This was a few months before the Dot Com/911 correction of 2000-2002. I would guess that if this client had held onto all of these funds, they would have dropped by 50% or more by the time the markets bottomed out.

Because of this, one of the first things that I do with a new client is to set-up a simple excel spreadsheet with a line for each holding and account, classified by asset class. This allows me to see the client’s allocation in total and provides a base line for any reallocation of the portfolio.

While I’ve focused on investments, the type of clutter described above is often accompanied by clutter in other areas:

Non-existent or missing beneficiary designations on insurance policies, annuities, and retirement accounts. As the beneficiary designation is the final determinant as to how these types of assets are distributed at death, a missing or outdated beneficiary designation can cause these assets to go to someone other than who you would choose. Beneficiary designations may need to be updated for various life changes including marriage, divorce, birth of a child, a family death.

Outdated or non-existent estate planning documents. I’m not going to say much here, maybe more in a future post, other than this. If you have minor children, you generally MUST have an up to date will that designates your desired guardian for those children (check with an attorney for the requirements in your state). If not and the worst happens, the outcome for your children and your family can potentially be very ugly.

Lost or misplaced assets. This is huge and the reason why most states have an unclaimed property department, usually in the Office of the State Treasurer. True story, I recently discovered about $1,500 that had been sent to a former address in 1985. I completed the paperwork and about 12 weeks later I received my check from the Wisconsin Treasurer.

As a financial planner, one of the first things that I do is gather information about all financial holdings for a new client, as well as copies of important documents and tax returns. This gives me a picture of where the client is and allows us to begin planning how the client will get to where they want to be financially.

Whether or not you are working with a financial advisor, I urge you to eliminate the financial clutter in your life.

Please feel free to contact me with your financial planning questions. 

Photo credit:  Tax Credits


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A Review of Your Portfolio


With the recent market declines, it may be painful to reevaluate your portfolio in depth, especially if your portfolio

English: Markowitz-Portfolio Theory, Investmen...

contains large losses. But this review is necessary to see if changes are needed to your portfolio. Some factors to consider include:

Measure the performance of each investment in your portfolio. Many investments and investment managers will provide you with periodic performance information. If you invest in individual stocks and bonds, you may need to calculate those returns yourself. Your total return equals the change in market value plus any dividends, interest, or capital gains, divided by the beginning market value. Total return can be difficult to calculate, especially if you make additional investments or withdrawals during the year.

Compare each component of your portfolio to an appropriate benchmark. A wide variety of market indexes now exist, covering many different segments of the market. You should be able to find ones that track investments similar to each component of your portfolio. Making comparisons to a benchmark should help identify portions of your portfolio that may need changing or that you want to start monitoring more closely.

Calculate your overall rate of return, comparing it to your estimated return. When designing your investment program, you probably assumed a certain rate of return that determined how much you needed to invest to achieve your financial goals. Calculating your actual return will determine if you are on track. With the recent market declines, you are likely to find you have not made that much progress or may have lost ground over the past couple of years. In that case, you need to take a fresh look at your financial goals and your current investments, and then recalculate how much you should be saving on an annual basis to reach your goals.

Review your overall allocation to determine whether changes are needed. This annual review is a good time to compare your actual allocation to your desired allocation. You may find you need to make changes for a variety of reasons. Over time, you will find your allocation shifts due to varying returns on different assets. You may also need to sell certain investments that are not performing well. Your asset allocation is likely to need refinement, since your strategy will change over time.

If you are not comfortable doing this yourself, considering hiring some help. You may not have access to the information and tools needed to perform an in-depth analysis of your holdings and your overall portfolio. Further, a professional advisor can provide you with a detached third-party point of view to help you make changes where needed.

Please feel free to contact me for a review of your portfolio.

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Asset Allocation Basics

Difference Between Stocks and Bonds

The theory behind diversification, or asset allocation, is to spread your investments across different asset classes to help protect your portfolio from downturns in any one asset. Diversification is a defensive strategy – it is meant to protect your portfolio during market downturns and to reduce your portfolio’s volatility.

Your asset allocation strategy will depend on your risk tolerance, return needs, and time horizon for investing. While each person’s asset allocation strategy will be unique, you should consider these tips:

To moderate your portfolio’s risk, invest in both stocks and bonds. Stocks tend to have a low positive correlation with corporate and government bonds, meaning that on average, movements in stock prices will only moderately match movements in bond prices. Thus, owning both reduces your portfolio’s risk.

With a long time horizon, you can increase your allocation to stocks. By staying in the market through different market cycles, you reduce the risk that volatility will adversely affect your equity performance. Those with a time horizon of less than five years should not be invested in stocks. Look at cash and bonds for those short-term needs.

Diversify within as well as among investment classes. For instance, in the stock category, consider value and growth stocks, small- and large-capitalization stocks, and international stocks. Bonds could include long-term bonds, intermediate-term bonds, high-quality bonds, lower-quality bonds, Treasury securities, municipal bonds, and international bonds.

Make sure you have reasonable return expectations for various investment categories. Basing your investment program on return estimates that are too high could cause you to increase the risk in your portfolio in an attempt to obtain higher returns.

Once you develop an asset allocation strategy, rebalance it at least annually. Since your strategy is designed to provide a stable risk exposure, you need to periodically rebalance so your allocation does not get out of line.

Make sure you have enough cash to handle short-term needs. That way, you won’t have to sell investments at an inappropriate time, such as immediately following a market downturn.

Evaluate new investments carefully, ensuring they add diversification benefits to your portfolio.

Don’t keep adding similar investments, such as several stocks in the same industry. Not only does this not add much in the way of diversification, but it makes your portfolio more difficult to monitor.

Avoid following the market too closely. Your asset allocation strategy is designed to guide your portfolio’s long-term makeup. Don’t rethink that strategy simply as a result of a market downturn.

Please feel free to contact me with your financial planning and investing questions.

Please check out our Resources page for links to some tools and services that might be beneficial to you.

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