Writing an investment policy statement

Once we have a financial goal identified and a time frame for meeting that financial goal, then it is time to put down in plain English the specific plan we will undertake to go about meeting that goal.  This will involve writing an investment policy statement.  All big financial institutions, such as bank investment departments and mutual funds do this and their investment policy statements are usually several pages in length.  They use their investment policy statements to set down the "rules of engagement" whereby they will invest their customers' money. Of course, our investment policy statements will be much simpler because we are investing only for ourselves. We just want to get down in writing a plan that will guide our actions in meeting a financial goal.  This statement will also be a reminder to us as time goes by just how we should be investing so that we don't get off track.  In a word, it provides us with the discipline that we need so that we will not let our emotions dictate our actions when the going gets rough. 

And believe you me, the going can get very rough!  The market meltdown of 2008 is a very recent example of just how rough the going can get.  Losses in investment portfolios of 30% to 50% were not uncommon and a lot of the selling of stocks were by folks who were flat out scared to death that their investments would be worthless.  So a lot of people did just the opposite of what we know we should do.  They bought high and sold low, which is always a guaranteed loss.  Had those who panicked held on to their stocks they would have largely regained their losses the very next year as the stock market made a stunning comeback from the previous record lows.  Even today, some people are so fearful that they have permanently vowed never to invest in stocks again.  And that is o.k. if your aversion to risk is so great that you can't sleep at night worrying about your stock investments.  Just realize that if you are one of those who have given up on stocks, that your investment options to achieve your financial goals will be significantly reduced.  Stocks will continue to provide the best choice to keep pace with inflation and provide a sufficient return to help us achieve our financial goals, in my opinion.

Your odds of achieving your financials goals will be greatly enhanced if you have a well-thought out written plan to follow.  So with that in mind, let's look at how we can get our investment policy statement down on paper.  Let's use a fictitious married couple in our example of developing an investment policy statement.  Meet Joe and Liz Simpson (no kin to Homer and Marge).  Joe is 35, Liz is 33.  They want to begin an  investment program to provide funds sufficient for retirement income when Joe turns 65. They both work and have 401(k)s at their workplace, but they want to have a separate investment portfolio apart from work to supplement their 401(k)s. 

• Step 1-  State your financial goal.  In the case of the Simpsons, this could be stated as:  Save to provide sufficient funds for retirement in 30 years.  So we have the goal and the time frame stated simply.  We have a long term time horizon in which to invest, so stocks could definitely be an option for investing.
• Step 2- The first step provides the "why" we are investing part, so the next steps will determine the "how" part of the equation.  In step two, we determine that since this is a long term retirement goal, we can take advantage of one to the tax advantaged retirement programs.  In the case of the Simpsons, they decide that they would like to contribute to a Roth IRA.  This would complement their participation in their 401(k)s at their workplaces.  The contributions to the 401(k)s provide them with tax deferral and they get a tax deduction right off the top because they don't pay taxes on the money that they contribute.  On the other hand, the Roth IRA doesn't provide the upfront tax deduction but the earnings in the account are not taxed as in the traditional IRA or a 401(k).  In addition, distributions from the Roth IRA are not taxed, whereas the distributions that are eventually taken from the 401(k) are taxed at the participant's income tax rate at the time of the distributions.  So, to get to the point, the Simpsons decide that each will contribute $5,000 to their respective Roth IRA accounts each year, which is the maximum for the year 2010.  So far, our investment statement reads:  We will undertake an investment program to supplement our 401(k) savings so that we will have sufficient funds to provide income in retirement starting in 30 years by each contributing $5,000 annually into a Roth IRA.  Please note that we haven't gone into specifics as to what dollar figure that we are talking about.  That is, just how much money are the Simpsons going to need at retirement.  For purposes of illustrating the concept of an investment policy statement, we are not going to get into specific figures.  For one thing, the computation of a specific figure requires us to make a lot of assumptions about such things as inflation rates and rates of returns on different asset classes.  It also requires a lot of number crunching that is best left to a trusted adviser to help you out with.  He or she will have the necessary knowledge and the necessary tools, such as sophisticated computer software programs, to help you arrive at a specific figure.  To keep our illustration simple, we will simply state that the Simpsons
• Step 3- Decide on which types of investments to have inside the Roth IRA.  Government regulations allow all sort of investments inside an IRA.  For our purposes, we are only going to consider the 3 most common types:  stocks, bonds, and cash.  This is to keep our example simple and also because stocks and bonds will most likely be the major part of any long term investment.  The Simpsons decide that they are going to invest their IRAs in mutual funds.  This is, in my opinion, a wise decision on their part because with mutual funds you can get instant diversification.  The proper mutual funds will provide you with diversification by allowing you to own the stocks and/or bonds of a hundred or more companies with your initial investment.  Buying individual stocks and bonds is out of the reach of most investors just starting out and it takes an awful lot of expertise not to mention time and energy to make the specific selections.  
• Step 4- Determine the percentages of  stocks and bonds inside the Roth IRA.  In general, the more stocks inside an investment, the riskier the investment is going to be.  But their is a trade off between risk and return, because if you invest too conservatively, that is stick mostly to bonds,  the rate of return we can expect will likely be reduced.  What we want is what is known in investment parlance as "the optimal portfolio", that is, one in which we can get sufficient return to meet our investment objectives but will still allow us to sleep at night.  This involves determining your "risk tolerance" which is just a fancy term for assessing your ability to cope with failing to achieve your target rate of return, and yes, most of all to tolerate losses in your portfolio.  There are currently a number of risk tolerance questionnaires to help you determine your risk tolerance and you can take them to see how you score, but the best advice I can give you here is to always take as little risk as you can to achieve your investment objectives.  In our example, the Simpsons have 30 years over which they can invest, but I would recommend to them to still have only about  60% to 70% allocated to stocks.  This percentage should decrease as time goes on and this points out the fact that any investment statement policy that you come up with should be reviewed at least annually to make needed adjustments in your portfolio.  So far, the Simpsons investment policy statement reads:  We will undertake an investment program to supplement our 401(k) savings so that we will have sufficient funds to provide income in retirement in 30 years by each contributing $5,000 annually into a Roth IRA.  Our IRA investments will be in diversified mutual funds with a 70% stock allocation and a 30% bond allocation. 
• Step 5- Select the specific mutual funds.  In the case of the Simpsons, since I am going to pretend to be their investment advisor, I am setting them up in two mutual funds.  The stock fund will be the Vanguard Total Stock Market Index Fund and the bond fund will be the Vanguard Total Bond Market Index.  These two funds will give them a broadly diversified portfolio across the two major asset classes and will keep their investment expenses very low.  They will not be trying to pick out a particular actively managed fund that may or may not outperform the index fund (most under perform).  At the same time each year, they will rebalance the percentages inside the IRAs so that they maintain their desired percentage.  For example, if stocks have a good year so that the money inside the IRA is now invested in 65% stocks and 35% bonds, then at rebalancing time, they would sell 5% of your stock mutual fund shares and buy shares of the bond mutual fund to bring the balance back to 60/40.  It's that simple.

We now have the Simpson's investment statement policy:  We will undertake an investment program to supplement our 401(k) savings so that we will have sufficient funds to provide income in retirement in 30 years by each contributing $5,000 annually to a Roth IRA.  The money contributed to our IRAs will be invested such that 60% will be invested  in the Vanguard Total Stock Market Index Fund and 40% will be invested in the Vanguard Total Bond Market Index Fund.  This stock/bond percentage will be maintained by rebalancing annually.  (Note: If the Simpsons decide to reduce their stock percentage as they get closer to retirement, then they can take the opportunity at rebalancing time to adjust this percentage. This stock allocation reduction could be done each year or every other year, every 5 years, and so on. If they decide to do this, then this should also be stated in the investment policy statement.)

Just for information purposes, if the Simpsons follow through with their investment plan of contributing $10,000 $5,000 each) annually to their Roth IRAs, and they can get an average annual return of 8%, after 30 years they will have accumulated $1,132,832.  And they will not have to pay any taxes on this money at any time.  What a sweet deal!  Having a written plan will increase the odds that you can do just as well.

Wishing you the best,
Randy
randy@mooreadivser.com

Keep It Simple, Sweetheart- Setting Investment Goals

In my last newsletter, I promised that I would take you through the orderly steps required to establish and maintain an investment portfolio. This newsletter will consider the first step in the process : Determine your investment goals.  How are you going to get somewhere if you don't know the somewhere you're trying to get to?  I mean, would you just hop in a taxi and tell the driver, "Here's 20 bucks, just take me wherever you're going and step on it!."  That wouldn't make any sense.  The cab driver would be glad to take your money, I'm sure, but you would only get nowhere fast.  The point is, if we're going to be saving our hard-earned money and forgoing the pleasure of spending it now, we should have a well-defined goal for those savings. But setting our financial goals also does something else for us.  It determines the time frame we are looking at to accumulate the necessary funds for our goal.  This in turn help us to determine how we are going to put the money that we save to work for us, that is, how we are going to invest it.

For example, if your goal is to save $30,000 for the down payment on a new home in 5 years, you wouldn't want to invest the money in an aggressive growth stock mutual fund.  Your potential rate of return will be greater than putting your money in a bank savings account, but the risk is all out of proportion for this particular goal and time frame.  Let's say the mutual fund into which you are making your monthly deposits of $500 has the following rates of return for the 5 years:
                                                    Amount Accumulated
Year 1:  10%                               $6,600
Year 2:   25%                              15,750
Year 3:     7%                              23,272
Year 4:  -10%                             26,945 
Year 5: -15%                             $28,004

Although the fund had great returns in the first 2 years of your savings plan, the 2 lousy returns in the final 2 years has left you a little short of your goal.  That's the problem with using riskier investments for short term gaols.  If we would have instead deposited our monthly savings in a savings account or money market mutual fund earning a 1% return, we would have accumulated $30,809 with very little risk.  I will concede that a 1% return that is reflective of our current economic environment provides a pretty lousy return compared to rates on savings accounts and money market funds in the not too distant past, but we have to work with the tools currently at our disposal. 

If we have a longer time period in which we can save for a goal, for example, retirement, then a mutual fund such as an aggressive growth fund could be appropriate for a portion of our investment portfolio.  I emphasize the word portion because, no matter how young you are when you begin accumulating a retirement fund, financial planners generally recommend that you also have some less risky and non- correlated asset classes in your portfolio, such as bonds.  The point is, with a longer time frame you have time to recover from a few bad years of returns before you will need to withdraw the funds, so you can afford to take on riskier investments that potentially provide a greater return.  Since stocks have in the past 50 years or so provided a greater return than bonds, then you will want to include some stocks in your portfolio for long term investment time frames, or as they like to call it in financial planning circles, longer time horizons.

Similar goals will present different time horizons depending on our individual circumstances.  For example, if you have two children and one of them is 5 and the other is 12, you will of course have two different time horizons and therefore will need to select investments appropriate for each time horizon.  In either case, as the time for starting college approaches then you will want to increase your bond portion to decrease your risk exposure so that the funds will be available for college costs.  Another example would be retirement saving.  A 30-year old and a 50-year old person obviously have different time horizons and so the types of investments and percentages in the respective portfolios appropriate for each person would be different.

Most of us have several financial goals that we need or want to work toward so it stands to reason that we will have more than one investment portfolio. For example, one portfolio for retirement, one for college savings, one for a major purchase, and so on.  We could think of all of our investments as one portfolio and each specific goal could have its own sub-portfolio.  I know some of you are thinking that that sounds complicated and I'm preaching simplicity, but if you think of your finances in terms of goals, as you should, then it follows that different goals will require different types of investments.  Just think in terms of something that is easy to relate to....pie.  We have all seen pie charts and they are pretty easy to understand. A simple pie chart could be just 2 slices, or a pie cut in half if you, for example, have 50% of your money in bonds and 50% in stocks.  More than likely in your portfolio you'll also have other types of investments, so, for example, if you have 15% invested in a money market account, 10% in cash, 25% in bonds, and 50% in stocks, you would have a 4-slice pie with each slice proportionate in size to the percentage of each investment type.  So with multiple goals you will have several "pies", all sliced up differently and with a different set of ingredients. And hopefully, with time and the great American economy on your side, your investments will have grown to meet your goals so that by the time your pies are ready to be served up, they will be very, very filling. 

The bottom line:  Setting specific investment goals is the first step in developing a successful investment strategy. You can do it!  It's as easy as pie!

Next newsletter:  Step two in developing an investment portfolio-Writing out your investment policy statement.

Wishing you the best,
Randy
randy@mooreadviser.com

Keep it simple, sweetheart.

Our lives can get very complicated these days.  With all the high-tech gadgets and all the consumer choices we have at our command, we can get away from the simple things in life that really make life worthwhile.  Like.....spending more time with our families or getting outside and doing some low-tech activities such as walking, gardening, swimming, or playing volleyball and the like.  Most of us have well over a hundred cable channels to choose from, but, let's be honest, how many do you actually enjoy?  I know I routinely watch less than a dozen or so channels, and the choice of programs are not all that great on the ones that I do watch.  I probably watched more TV and enjoyed the programs more when I was a kid and we only had 2 channels to choose from.  (I know, I getting old.)  I guess my point is that more choices don't necessarily make for better choices.  And I think the same holds true for choices in the investment world.  Take mutual funds, for example.  The total number of mutual funds has risen from 361 in 1970 to over 8,000 today.  Are we, the investing public, any better off with the massive increase in the number of funds?  We certainly have more choices, but how to we glean from this multitude of  funds the few that will be useful in helping us reach our investment goals?  How do we separate the wheat from the chaff?  How do I go about setting up an investment portfolio of mutual funds that will allow me to accomplish my financial objectives given the current state of the economy and the high level of volatility exhibited by the stock market lately? 

I have four words of comforting advice for you:  Keep it simple, sweetheart.  (Or if you're a guy, keep it simple, stud.  How's that?  I know the standard phrase is "keep it simple, stupid" but I don't like to use the word stupid here because anyone smart enough to be reading this newsletter is definitely not stupid, in my humble opinion!) I think you will find that investing can be successful if you follow a few simple steps in the implementation of your investment plan and you stick to that plan.  Investing does not have to be complicated but it does need to be orderly and rational.  So, with that in mind, next week my newsletter will contain the first step in the orderly process of establishing an investment program.  Each week, my newsletter will take you over a different step of the process until we have covered the basics of setting up your investment portfolio. Stayed tuned. 

Sealed with a K.I.S.S.,
Randy
randy@mooreadviser.com

If I only had a brain!

If you've never seen the classic movie, "The Wizard of Oz", then please quit reading this newsletter, because you're from another planet and nothing I say here will do you any good.  You need help of a different kind.  But for you inhabitants of good old planet Earth, let me give you the last verses from the song the Scarecrow sings to Dorothy:

I would not be just a nuffin'

My head all full of stuffin'

My heart all full of pain

I would dance and be merry

Life would be a ding-a-derry

If I only had a brain

Well, I'm not sure what a ding-a-derry is but I do know we humans have a brain.  Now, just how much we use our brains is another question altogether.  Now, don't get me wrong, I'm as lazy as the next guy when it comes to thinking.  Thinking takes a lot of work.  But, think about this....since we don't all have the brains of an Einstein, doesn't it stand to reason that we should use as much of our brain power as God has blessed us with?  

For example, those of you out in the workplace, do you know exactly what your job's total employee benefits are?  Now you probably know what your hourly rate of pay is or, if you're not paid by the hour, what your weekly or monthly salary is.  But if you have a job that has any benefits at all, and most do provide some benefits, do you know what those benefits are, really?  If you don't then it's time you found out because those benefits can be very, very useful to you and your family.  The following is a list of some of the possible benefits that companies provide and a brief description of how they can be useful.  You should find out as soon as possible if your employer provides any of these benefits and take advantage of those that are available as early as you can
. 

• Health insurance- protects you and your family from catastrophic medical costs

• Life insurance- provides your beneficiaries with a lump sum or periodic payments if you die unexpectedly

• Disability insurance- provides a percentage of your pay to you if you are injured or become ill and cannot work

• Flexible Spending Plan, also known as pre-tax spending plan- allows you to set aside money tax-free to pay for certain expenses such as medical, dental, and child care

• Thrift plan- let's you set aside money into a tax-deferred account 

• Employee stock ownership plan (ESOP)- a profit sharing plan that offers you shares of company stock

• SIMPLE IRA- allows you to set aside money tax-free into a tax-deferred account for retirement; may provide an employer match up to 3% of your pay

• Qualified retirement plans- 401(k) plan or 403(b) tax sheltered annuity plan  - these plans allow you to set aside money tax-free into a tax deferred account; may also provide an employer match

The above list by no means includes all of the possible employee benefits that your employer may provide, but these are the biggies.  Some of these benefits may be provided to you without any sign-up necessary on your part and some you must fill out paperwork to get enrolled.  But by all means, find out what you are eligible for and sign up today for the plans that will benefit you.  Some may be of limited use, such as life insurance for a single person, but some are, well, a no brainer. For example, if you are eligible to contribute to a 401(k) with a 6% company match and you are not enrolled and are not contributing 6% of your pay, then you ought to have your head examined.  You might be like the Scarecrow in the "Wizard of Oz"!  Now that's a no brainer of a different color.

Hope this helps....somebody,

Randy

randy@mooreadviser.com        

We have met the enemy and he is us!

Walt Kelly penned the syndicated comic strip "Pogo" from 1948 to 1975.  In 1970 he created a poster for Earth Day showing the lovable main character, a possum named Pogo, standing in a heavily littered forest with the caption, "We have met the enemy and he is us".  Yes, we humans are sometimes our own worst enemies.  We eat too much junk food, we don't get enough exercise, we watch too much TV, we do destructive things not only to the environment, but to our relationships as well. Since I'm not Dr. Phil, I won't get into relationship issues, but as a financial planner I will go over some bad behaviors in the realm of personal finance.  So, all you bad boys and girls out there, listen up!  I'm going to give you my list of the top seven reasons why we are our own worst enemy when it comes to saving and investing to meet our financial goals.  ( I was going to make it a top ten list because that sounds better, but since I could only come up with seven, they are all going to start with the letter "P".  Hey, I had to try to impress you somehow.)

• Bad Behavior #1-  Putting off, or procrastination if you want to get all fancy.  Yes, we all do it, but this is the number one reason we don't meet our financial goals.  The sooner we get started, the easier it is to accumulate the funds we need.  But you don't need me to tell you this, you already know that.  But in case you didn't already know this, see my August 1 blog, "Start early, stay the course!"  Do it now! No putting off!
• Bad Behavior #2- Poor planning.  Even when we decide to finally start a savings and investment program, we may sabotage our good intentions if we fail to come up with a written plan of execution.  Why is this so important?  Well, we humans have a bad habit of straying from the path.  But when you write down a goal, complete with specific steps with deadlines for completion of the steps, then the goal passes from being a daydream to an actual plan.  That's right, a goal without guidelines and deadlines is just a daydream.
• Bad Behavior #3- Pessimism.  O.K., I admit it, there are a lot of reasons to be pessimistic.  About the economy, the budget deficit, the state of politics in Washington.  Heck, there are good reasons to be pessimistic about life in general.  But don't give in to the feeling. Pessimism can become so ingrained into our thoughts that it becomes a bad habit that will blind us to all the reasons to be optimistic.  And there are many more reasons to be optimistic than pessimistic when it comes to achieving your financial goals. For all its faults, we still live in the greatest country in the history of mankind, with the most innovative and robust economy in the whole world.  We can achieve our financial goals by investing our hard-earned money in the greatest companies in the world, good ole USA companies who still pay stock dividends and whose stock share prices will appreciate in value as good times return, as they most assuredly will.  Bank on it! 
• Bad Behavior #4- Panicking.  If we know anything about the stock market, we know it will go down.  This tendency for stock prices in general to go down in certain economic times is known as systematic risk.  It is why stock investing is risky.  There will be times when the economic outlook will be not so rosy.  Investors become fearful and so many of them will sell their stock shares, even at a loss. But now is not the time to panic.  If we have a well diversified portfolio with the right proportion of stocks and bonds according to our level of risk tolerance, then we should not sell simply out of fear. If fact, this is the very time that many savvy investors will buy.  We should always strive to buy low and sell high.  But when we get panicky, we will do just the opposite.  We will sell at a  lower price than it cost to get into the stock and that is a guaranteed loss. 
• Bad Behavior #5- Pain avoidance.  Hey, wait a minute. Everybody wants to avoid pain. What could possibly be wrong with pain avoidance?   Well, here I am talking about the kind of pain that's good for you.  As in weight lifting, for example.  You know the old saying, "no pain, no gain".  When it comes to saving for our financial goals, most of us are going to have to give up some things in order to be able to set aside the money to fund those goals.  In other words, we are going to have to make some sacrifices.  This doesn't mean we'll have to live like a monk, but for most of us the sacrifice would probably be good for us.  Instead of keeping up with the Joneses, we will be living within our means and we'll be keeping up our investment account balances.  To paraphrase a popular running T-shirt message, "Save hard, live easy".
• Bad Behavior #6- Performance chasing. Once we have established a written investment plan, we should stick to that plan.  If we have a properly diversified portfolio, we should be in good shape to capture the stock market gains necessary to fund our goals.  So let's be disciplined.  For example, let's say we are invested in a large cap stock mutual fund where the manager has been successful the past several years in beating the S&P 500 index.  Now let's say he has two years in a row of bad returns that don't beat the index.  Let's not sell out of the fund to invest in another fund that has had a better year just because of the short term sub-par performance of our fund .  If our current fund's manager is still operating the fund according to the guidelines in the prospectus, it should still be a solid fund based on its past performance.  Getting in and out of funds trying to capture the returns of last year's best performing fund is what's known as performance chasing.  It is a behavior guaranteed to lose money, so let's not do it.
• Bad Behavior #7- Pridefulness.  O.K., I going to use this word even though spell check doesn't like it. After all, I had to have my final "P" word. So what do I mean by "pridefulness".  We all know that there is nothing wrong with taking pride in our accomplishments.  We are rightfully proud of ourselves if we, for example, have lost weight, or learned a new skill, or have been recognized by recieving an award, and so on.  But the pridefulness I am talking about is a false pride and so we don't always recognize it in ourselves.  When it comes to investing for our financial goals, we can attribute too much of any success we have had to our own skills when the success may have just been good luck on our part.  This may give us a good case of over confidence that leads us to take unnecessary chances in our portfolio.  So, my point is, don't be too prideful to get a second opinion from someone you trust.  Don't be afraid to consult someone when you are beginning an investment plan.  It may make the difference between getting off to a good start and getting off on the wrong foot.

The bottom line is, with so much out of our control when we invest, we should try to control what is possible for us to control.  We can make up our minds to save and invest for our important goals.  We can try to control our emotions: fear, greed, feelings of pessimism, over confidence.  The fact is, the most important component in a formula for success in meeting our financial goals is self control.  If we can control our harmful saving and investing behaviors, our chance of success will increase tremendously.  Then we can amend the words of our little furry friend, Pogo, to say, "We have met the cause of our success and he is us"!

Signing off,
Randy
randy@mooreadviser.com

Stay away from Wall Street!

Yogi Berra, that often quoted sage who played catcher for the New York Yankees back in the 1950's and 60's, once remarked, "You can observe a lot by just watching."  How true, Yogi, how true.  The next time you have a few minutes to waste, check out the folks at the CNBC cable network, and you will observe Wall Street on display.  On second thought, don't waste your time watching them.  Just let me give you a quick heads up on what you're likely to see on any given day.  One so-called expert after another will appear to give you his or her prediction on where the economy is headed and what the stock market is likely to do.  Of course, these experts all differ in their opinions, and each will give you convincing evidence for believing the way they do.  Sometimes several experts will appear at one time, and they will duke it out for their particular view.  I guess this makes for good TV, but if you're tuned in to try to get informed on news you can use, forget it.  Whose opinion do you go with, the guru who talks the fastest with the loudest voice?

The economists and stock analysts on the show are bad enough. (George Bernard Shaw is quoted as saying that if you laid all the economists in the world end to end, they still couldn't reach a conclusion.)  But the traders and the stock pickers are the ones who really kill me. They provide seemingly endless tips on how to make money in the market.  For instance, making money by buying stock on "the dips," buying shares of  Can't Miss, Inc. because the stock is undervalued and share prices are bound to go up because the company has just come out with a startling new innovation, selling shares of Big Bust, Inc. because the stock is at its 52-week high, investing your money in the health care sector of the market because it is hot, and on and on and on.  Late in the day, here are a panel of traders and pickers giving their picks and ploys to help you make money in the market. Of course, they can't agree on the best picks and strategies, but never mind, just trade and eventually you'll hit a home run. Then you can set up shop on Easy Street. 

 Please believe me when I tell you that it is in your best interest to ignore all the information from Wall Street.  A tiny minority of investors may have taken a direct route from Wall Street to Easy Street, but the vast majority of investors who have tried to get rich quick have either gotten severely side tracked or have crashed completely.  Wall Street caters primarily to two emotions:  greed and fear.  It's how professionals on Wall Street make their money.  One group of  "experts" will convince you their product or service will make you fabulously wealthy while another group (heck, sometimes its the same group) will tell you the sky is falling, and you need to employ their product or service to protect your investment nest egg.  Plus, they have literally millions and millions of dollars to promote their products.  If the 2008 market meltdown and the subsequent Great Recession of 2009 has taught us anything, it's that all the contrivances and connivance of the wizards of Wall Street are aimed at enriching themselves at the peril of the entire U.S. economy and financial markets. Is this too harsh an indictment?  Have you looked at your 401(k) lately?  Better yet, have you seen the latest unemployment report?

Well, if you have to stay away from Wall Street, where can you go to invest in the stock market?  It's not so much where you go to invest as it as how you invest.  What's the better way?  I think I can suggest to you a proven common sense way to invest to meet your financial goals.  Go to a reputable fee-only financial planner who will invest your hard-earned money in low-cost index mutual funds from a reputable investment company such as Vanguard Investments.  He are she will develop a financial plan tailored to your specific goals, time frame, and tolerance for risk and allocate your assets accordingly. By going with index funds you will be able to capture each asset class (such as large cap growth and value stocks, small cap growth and value stocks, short and intermediate term bonds, etc.) and have instant diversification by owning hundreds and even thousands of stocks or bonds in one mutual fund.  If you've never heard of a fellow named Warren Buffet, suffice it to say that he is a multi-billion investor who is considered to be one to the most brilliant investment minds ever. What does Mr. Buffet suggest the average investor do?  "The best way in my view is to buy a low cost index fund and keep buying it regularly because you'll be buying into a wonderful industry, which is in effect, all of American industry."

 With this strategy, you won't have to worry about every little dip in the stock market, or even large corrections in the stock market, because your portfolio will be allocated in the proper stock/bond ratio according to your tolerance for risk.  Now don't get me wrong, you will not enjoy any large corrections in the stock market.  Nobody does.  But that is part of the risk in getting into stocks.  The long term performance of stocks, however, justifies the inclusion of stocks in any but the most conservative of portfolios.  And with proper financial planning and investment advice, as the time approaches for the achievement of your investment goal, you will have transitioned away from a large stock position to a more conservative allocation which would have you with a larger proportion of bonds.  You'll be far better off with this long term strategy than a short term trading strategy based on the noise coming from the canyons of Wall Street.  I'll end this blog with a quote from Laurence J. Peter, American educator and writer and the originator of the "Peter Principle".  The quote applies specifically to economists, but I think you could apply it to many of the so-called experts on Wall Street:  "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today."  Don't you wish you had a job like that?

Signing off,
Randy Moore