On investing

There is always an imminent reason not to invest in the stock and bond markets; everyone has one. Rates are too low; rates are too high; Israel may bomb Iran; another terrorist attack may occur; my portfolio has gone down over the last 10 years. I have no confidence. Following the herd and having no confidence seems to be in vogue right now, but those who continue to pay themselves first each month in their 401k's, SEP/IRA's, Roth IRA's, mutual fund accounts, savings accounts, etc., and ignore the media seem to still come out ahead at retirement. Those who asset allocate to achieve the proper risk/reward mix for their situation also tend to come out ahead in the end.

Not surprisingly, the largest group of professional prognosticators is those most closely associated with making money: investment advisers. "According to the Securities Industry Association (SIA), a whopping half-million people are licensed by the National Association of Securities Dealers to advise clients on buying securities. They come from all walks of life, and about 200,000 of them actively make a living advising you on how to invest your money," according to William A. Sherden.

Based on Sherden's research, The SIA estimates that of these 200,000 investment advisers, nearly half are stockbrokers working at securities firms. In fact, almost everyone working in the $71 billion securities industry is involved in projecting the future of investments. The industry employs a large number of 'strategists' who project where the overall market is headed and 'analysts' who predict which stocks to buy and sell.

The Securities and Exchange Commission (SEC) has licensed about 10,000 money management firms. These outfits make up a $50 billion industry that includes everything from major financial institutions such as Prudential and Citicorp to thousands of small investment boutiques. According to the Employee Benefit Research and Investment Company Institutes, these tens of thousands of money managers provide investment predicting advice in managing $7.5 trillion in pension, endowment and mutual funds.

So in a very crowded field and with so much information everywhere...How do you know if you have found a good Investment Advisor? Here are some guidelines to help you:

1) They work on a fee basis. They collect no commissions from products or services that they sell to you. This helps to keep them on your side of the table. It keeps them independent and not tied to one firm's research or investment banking strategies.
2) They are associated with and custodian your assets at a large, well-known firm such as Fidelity, Schwab, Vanguard or TD Ameritrade.
3) They listen to your needs and assess you carefully to find the right risk and allocation for you and your family.
4) They hold events and write newsletters in order to educate you and your family on investments, strategies and the current economy. An advisor should take the emotion out of buying and selling investments.

After choosing an advisor, how does one create a portfolio that outpaces inflation and avoids outliving one's wealth? Here's the recipe: Take a look at US Domestic Large Cap Stocks, US Domestic Small Cap Stocks, International Companies both in the developed and emerging markets. Another ingredient, short-term fixed income prepares for rising rates, keeping some cash in the portfolio. It is necessary to strike the right balance between Growth and Value Companies, those companies that pay dividends versus those that do not.
I use this recipe, Inc., uses the following ingredients:

Stocks, ETF's (Exchange Traded Funds), Mutual Funds, Separately managed accounts (a group of stocks managed by a well-known professional money manager), bonds, preferred stocks, commodities and derivatives (options on stocks). Mixing all these together becomes more of an art than a science. The goal when concocting a mix is diversification, risk reduction, avoidance of concentration disasters, cost reduction and perhaps tax control. Some high net worth clients will not touch mutual funds outside of their retirement accounts because they disperse capital gains and really make tax planning a nightmare. Others invest only in mutual funds because of the great diversification they offer. "Making instant millions on Wall Street would be a piece of cake if you knew whether the economy was going to expand or contract at a particular time. You could make a killing in the commodities market if you could predict the climate for next year's growing season," Sherden says. The Statistical Abstract of the United States reports 148,000 people purporting to be economists - whatever that means

Courtesy Kristine Suber Hanchar

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