TAS Communications

Here are some letters provided to clients dealing with relevant investment and retirement issues:

Upgrading

 It looks like summer has arrived here in the Matanuska Valley. I always enjoy the anticipation of summer time activities, working in the yard, motorcycling and just savoring the warmth. Hopefully it will be a sunny summer.

 For the last several months I’ve been preoccupied with tax returns and have not provided you one of these narratives discussing investment issues I believe are important to you.  This issue will deal with the subject of investment upgrading, an integral piece of the investment management process utilized by Tegeler Advisory Services (TAS).

 In its October 29, 2011 issue, the New York Times included an article entitled “The Best Investing Advice? Maybe Not the Conventional Method.”  I’ve included a link to the article below. For those of you who don’t have the time or inclination to read it, here is a brief summary:

 DAL Investments, publisher of the NoLoad FundX newsletter analyzed the returns of 306 mutual funds. The result of their research challenges some of the conventional beliefs relating to investment success. Their findings include:

 ·         No particular investment strategy dominated in the study. Rather, most funds underperformed the Standard and Poor’s 500 about one third of the time.

·         Performance over the long term is not determined by a particular investment manager. On average, most managers achieved success for only four or five years. Bill Miller was identified as the best manager over the 22 years studied. Yet, his fund was ranked 187 out of 306 funds.

·         Low fees are not necessarily indicators of the best performing funds. The study determined that the fund with the lowest expenses (Fidelity Spartan 500 Index) was ranked 161st of the 306 funds.

 If these seemingly well accepted methods of mutual and exchange traded fund selection are not effective, what did the research conclude? Janet Brown, president of DAL Investments, proposes that an upgrading process of regularly identifying leaders and investing in them until such time that they begin to lag. In other words, through an analytical process developed by DAL over the past thirty years, funds are selected that indicate the potential for near-term growth. The success of this approach can be demonstrated by their $1.3 billion under management.

 Strategic Leadership (SL), the process used by TAS was conceived from DAL’s idea of anticipating future fund leaders. Although SL does not follow DAL’s process (it is propriety), SL incorporates the concept of leadership selection. In summary, SL utilizes an objective individually customized investment management system that provides monthly upgrading to maintain market advantage. Visit TAS’ website for additional description of SL.

 So what is the purpose of providing this information to you? First of all, it is important to question what appear to be well established beliefs (I welcome your input and questions). Additionally, I believe it is important that you have some understanding of how TAS manages your funds.

I recognize that for some, this narrative is quite tedious. So, if you’ve read this far, thank you. I’m wishing you a wonderful Alaska summer.

Here’s a link to the New York Times article:

http://www.nytimes.com/2011/10/29/your-money/the-best-investing-advice-maybe-not-the-conventional-method.html?_r=1&pagewanted=all

 

Retirement, Non Financial Issues

Retirement planning is often viewed as a number crunching process whereby a financial analysis is prepared to determine when employment may cease and how much needs to be saved today to provide for tomorrow’s financial needs. While this is no doubt an important element to retirement planning, there are other very important non financial issues to consider. I recently read an article in “Investment Advisor” magazine written by Olivia Mellan that offered some insight into these “right brain” matters.

Images of retired people frequently express the idea of “an idyllic life of leisure filled with contentment and joy.” However, as more of the population is reaching the traditional age to retire, evidence is showing that this image is not reality. Fundamentally, retirement is about change; often significant and abrupt change, change that impacts the core of an individual’s sense of self and meaning. Retiree’s, even if prepared financially, find new challenges such as varying degrees of depression leading to unhealthy addictions. Due to the profound change that occurs during this transition, what are some measures that can be taken to mitigate these potential hazards? Here are a few ideas that apply to anyone whether near retirement or not.

We’ve all heard of a “bucket list (those things you’d like to do before you “kick the bucket”).” Well, how about a “curious list.” This is a list of those things that you’ve always been curious about but have not taken the time to learn more. It should contain things that support your mental and physical health as well as social and financial well-being. You don’t have to wait until retirement to start. These activities could enhance your present well-being. If your current schedule doesn’t seem to allow time for new priorities, make an list by hour of what has occupied your time over past week. Review the list carefully identifying activities that are of low value when compared with your goals and priorities.

Open up the lines of communication with your spouse by discussing the following questions from the book “The Couple’s Retirement Puzzle.” If you’re not married, write out a response to those that apply to a single person.

  • What are our shared values?
  • Are there causes we would like to devote more time to?
  • Do we have a plan for our medical and health needs, financial and otherwise?
  • Do we have fulfilling social connections that can be expanded as we have more time?
  • How important is time together and time apart to each of us individually?
  • What lifestyle changes are anticipated, if any?
  • How will our responsibilities with our family change?

As stated above, much of this preparation does not involve financial issues, nor is it rocket science. However, it does require diligence and discipline to devote the energy to consider what could be the most significant transition of your life. As always, contact me if you wish to discuss any retirement or investment concern or if you know of someone who could benefit from planning for financial and other transitions.

Best wishes for financial peace. 

Other resources: "The Couples Reirement Puzzle;" and "Naked Retirement."

 

Market Downturn

 So, here we go again. Another period of severe equity market declines. What’s an investor to do?

If you are a client of Tegeler Advisory Services, LLC (TAS), you have already prepared yourself for times such as these. You have a long term plan in place.

Although there is concern when there are periods of rapid downturns, you have taken a historical performance perspective and have developed an asset allocation model to follow during times of growth and times of decline. Further, the plan is not static, but updated on a regular basis to allow for allocation changes caused by current market trends.

Since you have a plan in place, you have no need for prognostication about current market conditions. Your plan follows a process of asset allocation and diversification, not selection and timing. The problems with prognostication, selection and timing are as follows:

  • When is the best time to sell? No one knows. During the period from 1926 – 2010, $1 invested in stock would have returned $2,982. If you were not invested in stocks for only 39 months of this 85 year period your investment would be worth only $19.[i]
  • When will the equity markets reach the bottom, and when is the best time to buy back in? No one knows. After the October, 2007 to March, 2009 period of decline, the market recovered by 72% during the next twelve months.[ii]It would be easy to miss out on this recovery following a prognostication process.
  • What should be sold and what should be bought? This is a difficult choice when there is no long term plan.

With all of these variables, there is tremendous room for failure (you zig when you should zag). Why not use a plan developed by statistical analysis of your investment profile and stick with it. This is the process TAS Strategic Leadership employs.

In summary, Strategic Leadership follows the following steps:

  • Objective risk analysis evaluates the investor’s present financial profile.
  • Diversified asset allocation is calculated to prepare a customized asset class distribution.
  • Asset class leaders are identified and reviewed monthly.
  • Investor’s investments are updated based on monthly review.
  • Asset class laggards are sold, asset class leaders are purchased.

These times of downward volatility are difficult. While it may appear prudent to abandon your investments for something that appears more secure, please attempt to maintain your long term perspective. Short term reactions out of fear and speculation increase the risk of missing out on realizing your investment goals.

Please contact me with any of your concerns or questions.

If you know someone who might benefit from this information, feel free to forward it to them.
 


[i]Morningstar 3/1/2011

[ii]Morningstar 3/1/2011