Thursday, April 23, 2009

You need professional help, part 2

By Jason T. White, ph.D

Jason is a principal and director of investments for the Family Investment Center. As many families attempt to cut expenses, we’ve seen some question why the help of a professional advisor Is necessary. Jason had some thoughts on this that he wanted to share with our readers. He has a Ph.D. in Economics and Political Science from University of Missouri in Kansas City.
This is the second of a two-part series on why you need professional help. Keep reading below this entry for more.


Some have sought the “safety and protection” of precious metals like gold. Actually, many investment advisors don’t mind using a dab of gold as a hedge against price inflation. However, traders gripped by the twin demons of fear and mania often take gold ownership to extremes. Unfortunately, adjusted for inflation, gold currently sells for approximately the same price it did in 1980. Professional advice can help you build a properly diversified long-run portfolio with much better outcomes.

Political headwinds

Politics is a philosophical, emotional and important discipline to many, including us. Invariably, there will be highs and lows as your candidates/party wins and loses elections, and the political pendulum swings right to left to right… you get the idea. Navigating uncertain political times is an important role of a professional advisor. Our job involves taking a dispassionate view of the political landscape and guiding investors in a prudent course of action. For the record, we are not currently recommending stockpiling guns and gold, but profit opportunities abound in many financial sectors that are quite different from the “sweet spots” we found during the Bush years.

The Resurgence of Lord Keynes

So, what is an investor to do when confronted with $9 trillion dollars in expected federal budget deficit spending over the next few years? In a word: hedge. And what has historically proven to be the best hedge pockets for prospering in an expected future inflationary environment – stocks and real estate. Your home likely accounts for a significant percentage of your net worth, so it is our view that when it comes to investment strategy, you should keep a reasonable portion of your investment portfolio in stock mutual funds. The stock price volatility of the past 16 months has made this a particularly gut-wrenching decision for many to stick to, but that is exactly why you need a professional financial advisor to coach you through this period of uncertainty.

Zigging when others zag

Traders are moving in and out of the market on daily, even hourly, news and data releases. This is not what professional investors do. While changing one’s overall asset allocation between stocks and bonds may be appropriate in your individual financial situation, and Family Investment Center exists to help you figure that out, jumping in and out of the market or radically altering your long-term asset allocation based on short-run “noise” is not a prudent strategy. In fact, this may be the single biggest impediment to long-term investment success. FIC will help you stay the course in these trying times.

Staying the course

During the period 1990 to 2007, which included two recessions, the return of the S&P 500 stocks averaged 9.5 percent per year. According to Advanced Equities Wealth Management, a fellow advisory firm like us, being out of the market for the 10 best days each year would have reduced this historical gain to an 11.5 percent average annual LOSS. It is axiomatic that the stock market will be volatile in the short-run, but it is the long-run steady players that find the pot of gold at the end of the rainbow.

Manage debt with prudence

We are in an era of consumer retrenching and deleveraging. The national savings rate among consumers has risen from none to 5 percent nationally in just a few calendar quarters. We strongly believe that our clients should work had to pay down high interest credit cards and other consumer debt. But given the choice of paying down principal on a 4 percent, 15-or-30 year home mortgage versus investing in the market, which sports the potential for twice the annual return over long-run, the advice from a professional investment advisor should be not to abandon a well thought out investment strategy in the face of short-term transitory challenges to the market. Market returns will return to their mean in time.

Media Doom and Gloom

Are we embroiled in the worst economy since the early 80’s, the mid 70’s or (gasp!) the Great Depression? We think not. In a predominately capitalist system, business cycle theory teaches that periods of bubble and bust are a normal part of long-term economic growth and stock market appreciation. Think of the fable of the tortoise and the hare. You can imagine all the little pink-nosed bunny traders lying panting on the side of the race track as they acquire positions and sell them minutes, hours or days later in an effort to capture a bit of appreciation from volatility. Family Investment Center advisors avoid that trap by adopting the behavior of the wise old tortoise; properly allocating assets for individual and institutional investors, plodding steadily forward in the face of short-run adversity, adjusting the portfolio on the basis of principal, not emotion, and emerging at the finish line happier, healthier and wealthier, and VICTORIOUS!

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