Investment Articles

With literally thousands of managed funds available, selecting a good one can be a daunting task. Following a few simple guidelines will assist in picking a sound one.

Objectives and Timeframe
Part of the key to picking a good managed fund is first looking at your own personal situation. A retiree may look for a fund with solid income (i.e. regular dividends or distributions along with a high yield), whereas a young first time investor might be looking for long term capital growth. The former might be reliant on their managed fund for income, whereas the latter might prefer a fund that re-invests dividends, potentially leading to even greater returns at a later point in time. The proportion of one’s investments a proposed managed fund is likely to be (including other stock investments, property etc) also needs to be considered.

Risk Profile
Staying with the same example, a retiree who has accumulated substantial assets might elect to choose a managed fund with lower risk, to maintain those assets (for example, a diversified fund, or a fund that invests in only larger “blue chip” securities). Such a retiree’s assets, if diversified, might allow for investment in a higher risk, but potentially higher reward fund (such as a sector specific fund, or a fund that only invests in small start up companies) if this makes up only a small overall proportion of their net wealth. Conversely, if a first time investor’s proposed managed fund investment is likely to make up a high proportion of their savings, then investing in a lower risk fund may be more prudent. Risk may be able to be increased as savings are built up over time, and investments diversified.

Independent Research Houses
Every fund manager is always going to sing the praises of their own products. Highlighting attractive investment returns over one year as compared to similar funds might not tell the whole story – the comparative returns over three or five years might not be as attractive. An independent research house can assist in providing detailed analysis of a fund, and also the fund manager’s relative merits. Bear in mind that fund managers pay independent research houses to research their funds.

Consistent Track Record
Look for a fund manager and a fund that have provided reliable returns over a medium to longer term timeframe (more than 1-2 years). Short term performance can sometimes be anomalous. Performance also needs to be viewed with regard to overall market conditions. A rise of ten percent in a year is great compared to bank interest, but very poor if the overall market has risen thirty percent.

Past Performance Is Not Necessarily An Indicator Of Future Performance
This common disclaimer does highlight the inherent risks in investing. One take away from this is that it is important to look at past performance, but it is equally important to look at the reasons behind the figures. Are the results based on sound investment principles or good fortune? Does the fund manager’s outlook and strategy give you confidence in their ability to continue to provide you with good returns in the future?

Share Trading can contain many pitfalls. Heed each of the factors listed above, and you will give yourself the best chance of choosing a managed fund with positive performance.

William Shaw is a boutique investment manager which specializes in offering Managed Accounts to private individuals, Self Managed Super Funds and financial planners in Australia. Our Managed Accounts service has outperformed the ASX 200 by 23.32%. For more information about our managed share investment service and about our high conviction active investment methodology, visit Managed Funds

Knowing how to invest is more important today than ever before. With Social Security and company pensions questionable at best, Americans need to learn to invest for their own future financial security. Here are some pointers and major mistakes to avoid if you don’t feel real comfortable as an investor.

Learning how to invest is really not much different than learning how to play any other game. First, you need a general understanding of the objective and the rules. Second, focus on the basic aspects of the game. Then, concentrate on avoiding major mistakes while you hone your skills and develope a winning strategy.

Your objective as an investor should be to earn higher than average investment returns over the long term with only a moderate level of risk. To do this you will need to manage a diversified investment portfolio that includes safe investments, bonds, and equities (stocks). It’s a major mistake to keep all of your money in the bank at low interest rates because at that rate of return you won’t stay ahead of inflation after paying income taxes. Totally trusting a financial planner or going it alone without any investment help can also be expensive mistakes for the average investor.

So, the question is how to invest with a diversified portfolio and investment help you can afford and trust. The answer is to invest in mutual funds: money market funds for safety and interest, bond funds to earn higher interest income, and equity or stock funds for higher potential returns and long term growth. Mutual funds are designed for folks with little more than a grasp of investment basics. They select the individual investment securities for their investors as a group and professionally manage a portfolio based on the fund’s stated financial objectives.

By investing across the board in all three basic mutual fund types you can achieve balance while keeping risk at a moderate level. For example, losses in stock funds can be offset in part by the relative safety and interest income from money market and bond funds. As a general rule of thumb, all but the oldest of investors need some money in stocks to boost profits and stay ahead of inflation and taxes. How much of your total portfolio you allocate to stock funds vs. money market and bond funds will depend on your age and risk tolerance.

If you’re not real comfortable with how to invest but know that you need to anyway, start investing in mutual funds. If you invest equal amounts in all three of the basic fund types you can get started with only a moderate level of risk while avoiding major costly mistakes. Then take your game and investment strategy to a higher level by doing some homework with the assistance of a good investing guide.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

In Canada there are many people who go by the titles of Financial Advisor, or Financial Planner. What most people do not realize is that these titles are not regulated (with the exception of Financial Planner in Quebec). Anybody can use these titles without any educational or experience requirements.

What is regulated by the government is licensing to sell financial products, such as stocks, mutual funds and insurance.

For example, before you can sell mutual funds you must become licensed as a “Mutual Funds Salesperson” A registered mutual fund salesperson is legally obligated to ensure to products they sell you are suitable based on your investment objectives time frame and risk tolerance. They are not required to act as a fiduciary. A fiduciary has a duty to act primarily for the client’s benefit in matters connected with the undertaking and not for their own personal interest. In other words, there is no legal obligation to put your interests ahead of theirs. As long as the investment is suitable for you there is no need to inform you of lower fee alternatives, even if they know they are better for you.

Whether acting as a fiduciary is a legal requirement or not, I think we can all agree that we want to work with an advisor who put the interests of their clients ahead of there own. If this is not happening then you should be looking for a new advisor. Here are seven signs you financial advisor is putting there own interests ahead of yours.

1. You purchased a mutual fund from your advisor with a Deferred Sales Charge (DSC).
These funds can easily be spotted on your statements. Most will have DSC after the name. When an advisor sells you a fund with a DSC they get paid a healthy commission, usually 5% and in return you get locked into the fund for 7 years in most cases and are subject to a higher management expense ratio (MER) which will mean lower investment returns. Your advisor could sell you the same mutual fund with a low load, meaning lower commission for them and in return a lower MER and shorter locked in period for you. Another option is a front end load fund. The front end load fund will have no locked in period, the lowest MER of the three options and a negotiable commission paid up front. The fund companies do set a maximum amount the advisor can charge but there is no minimum so it can even be set to 0%. If you hold a DSC fund in your account ask your advisor why they choose that option over the others, and if he has a good answer please let me know, because I have not heard one yet.

2. The only time they call you is when they are trying to sell you something.
If the only time you hear from your advisor is in February when it is time to make your RRSP contribution, or they are trying to get you to buy a certain investment, then chances are that the advisor is more concerned with their income then your savings. This tells me that they are only interested in speaking with you if there is a chance that they will earn a commission and not really interested in your future.

3. They take days to return your calls.
Many people consider it a good sign if their advisor is too busy to answer the phone. This can be seen as a sign that they are a good advisor with many happy clients. To me it tells me one of two things. They have poor time management skills or they are a good salesperson and have taken on more clients then they can properly serve in an effort to make as much money as possible. An advisor who has the client’s best interests in mind will only take on as many clients as they can serve, even if it means turning away potential business.

4. They have changed companies more then once and got you to move your Investments when they changed.
It is possible that the advisor has good reasons for moving, but this is a common tactic used by many advisors in an effort to maximize their own income. When a new advisor moves funds over from the old company to the new one it usually generates a commission for them, and in most cases will create extra costs for you.

5. They have no financial education.
I am the first person to admit that having a bunch of letters after your name does not make you a good advisor, nor does it mean you are an ethical person. However, if an advisor has their client’s best interest in mind, I believe they should make some efforts to improve themselves though continuing education. If they are not willing to do this then I would look for someone who is. There are many financial designations out there. CFP, R.F.P., FCSI, CIM, FMA, Ch.F.C, R.F.P. This is by no means complete list but includes the most common designations.

6. They have not told you how they get paid.
Regardless of how your advisor gets compensated you as a client should be made aware of the compensation by your advisor. An honest advisor should be upfront about the fees you pay, the income they earn and should have nothing to hide. If they are making a recommendation they should let you know the different options which one they think is best, and if they get paid more for it then another option they should let you know why it is worth the extra cost. Your advisor should offer this information to you and not only mention it if asked.

7. You feel pressure to make decisions quickly.
If you are being told that you need to act right away or you are going to miss out on a great opportunity, chances are it is a line and nothing more. Purchasing investments can be a big decision and you should be encouraged to take some time to review your options before jumping into anything.

If any one of this situations applies to you, then you need to review the relationship you have with your advisor and consider looking for other options. If more then one applies I would start the search today.

Ryan Rohloff FMA, FCSI
http://www.atlasfinancialplanning.ca

When it comes to investing, most of the people may think of the size of the amount needed to kick off with an investment. The common perception of investment is “I need a lot of money before I can even think of investment”. This statement may not be true as there are always ways to invest if you do not have much money in hand.

Now, if you have $1,000 to start with, where should you put the money?

1. Pay Down and Pay Off Your Non-Mortgage Debts
The first and the wisest way is to pay down your debts, especially credit cards debts. It is unusual for investment returns to beat credit card interest. Therefore, if you have $1,000 in hand, you should think of paying down your debts first, until they are fully paid up.

2. Create Emergency Fund
After you have paid up the non-mortgage debts or you simply do not have debts, then the next step is to create your emergency fund. An emergency fund is served as a back up should something out of your expectation happens, namely lay-off. You need to save up to an optimum level of between 3 to 6 months of your monthly expenditures.

3. Identify Investment Tools
When you have another $1,000 again, start looking for mutual funds to invest. It is not a good idea to invest in individual company’s stocks. You need more than 10 stocks in your portfolio to reduce the risks of deficit returns.

4. Select the Funds
How do you select the funds? There are too many funds flooding the market and undeniably some of them are underperformed. So the best way is to follow the fund managers and not the funds. Get a fund manager with high reputation of beating the market consistently. However, also take note that with $1,000 to invest, you may be limited to certain funds with low minimum opening balances.

Ng Chung Mun is an expert in life planning, specifically in individual risks management. For more on life planning and mutual funds investment, visit http://www.101lifeplanning.com/investment/3-main-different-types-of-mutual-funds-to-choose-from.php

Choosing an asset allocation, or the mix of stocks, bonds and cash in a portfolio, is the most important decision that you’ll face as an investor. A study by Ibbotson Associates concluded that asset allocation decisions determine about 100 percent of investment performance for those who follow a low-cost, long-term investing strategy. Similarly, according to a Dalbar and Associates study, many investors underperform the market because they deviate from their asset allocation plan during market downturns. Investors who want to maximize their long-term investment returns must develop a risk-appropriate asset allocation plan that they can stick with in good times and bad.

Asset Allocation Step 1: Evaluate Your Risk Profile

A reliable, long-term asset allocation plan starts with a thorough understanding of your risk profile. It’s helpful to think of your risk profile in two parts: your risk capacity, or the degree of portfolio volatility that you can absorb financially, and your risk attitude, or your emotional tolerance for risk.

Risk capacity is influenced by factors like income and net worth, but its largest determinant is time horizon. Early in life, when retirement is far off, your future earning potential can be thought of as a sizable bond, allowing you to allocate the majority of your retirement portfolio to more volatile equity investments. As you grow older and your future earning potential decreases, it’s important to replace those bond-like expected earnings with a higher percentage of bonds in your portfolio. By the time you retire, most of your investments should be in bonds in order to provide a reliable, low-volatility source of income.

Risk attitude is more difficult to quantify than risk capacity, especially for first-time investors who haven’t experienced difficult market conditions. Many investors make the mistake of failing to understand their risk attitude until a market downturn occurs. This usually leads to selling equity investments at the worst time (the bottom of the market), only to miss out on a subsequent market rebound. To help avoid this phenomenon, investors can use resources like risk questionnaires and historical performance charts to help find a stock/bond mix with an emotionally acceptable level of volatility. These tools are far from perfect, however, so when in doubt, it’s best to err on the side of conservatism.

Generally speaking, your most conservative risk dimension (capacity or attitude) should determine your portfolio’s equity/bond split. For example, if you have the risk capacity to handle a portfolio of 80% equities, but can only stomach the volatility of a 70% equity portfolio, you should choose the more conservative allocation. Developing a plan that you can stick with in good times and bad is much more important than maximizing your expected return.

Asset Allocation Step 2: Break Down Equities and Bonds

Once you’ve settled on a risk-appropriate stock/bond mix, you can think about subdividing the equity and fixed income portions of your portfolio. The key to this part of the asset allocation process is finding a suitable tradeoff between simplicity and maximum expected return.

Modern Portfolio Theory tells us that by adding volatile asset classes that don’t move in lockstep with the rest of our investments, we can increase our portfolio’s risk-adjusted return. Based on that principle, consider adding international stocks and Real Estate Investment Trusts (REITs) to your equity portfolio. Companies outside of the US represent more than half of the value of global equity markets, and investors have historically been compensated for the risks that accompany international investing. Likewise, REITs offer a great diversification benefit and give investors unique exposure to the commercial real estate market.

Within your US and international stock allocation, you may also want to boost your exposure to small company and value investments, as investors have historically been compensated for the risks inherent in these investing styles. If you’re not familiar with the arguments for overweighting these equity segments, however, you should probably steer clear of them in favor of simplicity.

To expand your fixed income allocation beyond a broad sampling of the US Bond Market, consider adding Treasury Inflation-Protected Securities (TIPS) and municipal bonds. TIPS are unique because, unlike traditional bonds, their principal and interest payments adjust with inflation, so they offer a government-guaranteed rate of return above inflation when held to maturity. Municipal bonds are appropriate for investors in high tax brackets with taxable investment accounts, as the interest from these bonds is generally tax-exempt in the issuing state and at the federal level.

Portfolios can be sliced and diced in any number of ways, but a more complex portfolio is not necessarily a better one. Wise investors understand that their investing success will largely be determined by their ability to stick with their asset allocation plan, and for that reason, they err on the side of simplicity.

Asset Allocation Step 3: Implement Your Plan

Once you’ve broken down your portfolio into target percentages, all that remains is to implement your asset allocation plan. With literally thousands of funds to choose from, it’s best to narrow down the field by focusing on one factor that you can control: investing costs.

First, you can minimize the impact of many fees, expenses and taxes by investing in low-cost index funds and ETFs. If your workplace retirement account has limited choices, simply pick the lowest cost funds that fill a position in your asset allocation plan. Secondly, pay close attention to all applicable fees and commissions prior to doing business with a brokerage firm or mutual fund company. IRAs and other investment accounts are extremely portable, so there’s no good reason to stick with a high-commission broker. Finally, maximize your portfolio’s after-tax returns by placing tax-inefficient asset classes (e.g., REITs, Bonds) in tax-sheltered accounts.

Once you’ve settled on specific investment choices, help yourself stay on track by formally documenting your asset allocation plan in an Investment Policy Statement (IPS). This document provides an organized framework for recording your investing goals, philosophy and target allocation so that you can help yourself resist the temptation to stray from your long-term strategy. The ideal time to draft an IPS is while the rationale for your asset allocation decision is fresh in your mind.

Conclusion

More than any other factor, your ability to develop and implement a risk-appropriate asset allocation plan will determine your investing success. By thoroughly evaluating your investing risk profile, choosing an appropriate level of portfolio complexity, and picking low-cost investments, you’ve taken a giant step toward your long-term investment goals.

George Watkins is President of West Wind Wealth Management, an independent, SEC-registered investment advisory firm that specializes in index fund and ETF portfolios. A former nuclear-trained Naval Officer, George has a BS in Economics from Duke University and an MBA from Harvard Business School. To receive a free asset allocation recommendation or a personalized portfolio recommendation for as little as $19, visit http://www.invest-it-yourself.com.

In Canada there are many people who go by the titles of Financial Advisor, or Financial Planner. What most people do not realize is that these titles are not regulated (with the exception of Financial Planner in Quebec). Anybody can use these titles without any educational or experience requirements.

What is regulated by the government is licensing to sell financial products, such as stocks, mutual funds and insurance.

For example, before you can sell mutual funds you must become licensed as a “Mutual Funds Salesperson” A registered mutual fund salesperson is legally obligated to ensure to products they sell you are suitable based on your investment objectives time frame and risk tolerance. They are not required to act as a fiduciary. A fiduciary has a duty to act primarily for the client’s benefit in matters connected with the undertaking and not for their own personal interest. In other words, there is no legal obligation to put your interests ahead of theirs. As long as the investment is suitable for you there is no need to inform you of lower fee alternatives, even if they know they are better for you.

Whether acting as a fiduciary is a legal requirement or not, I think we can all agree that we want to work with an advisor who put the interests of their clients ahead of there own. If this is not happening then you should be looking for a new advisor. Here are seven signs you financial advisor is putting there own interests ahead of yours.

1. You purchased a mutual fund from your advisor with a Deferred Sales Charge (DSC).
These funds can easily be spotted on your statements. Most will have DSC after the name. When an advisor sells you a fund with a DSC they get paid a healthy commission, usually 5% and in return you get locked into the fund for 7 years in most cases and are subject to a higher management expense ratio (MER) which will mean lower investment returns. Your advisor could sell you the same mutual fund with a low load, meaning lower commission for them and in return a lower MER and shorter locked in period for you. Another option is a front end load fund. The front end load fund will have no locked in period, the lowest MER of the three options and a negotiable commission paid up front. The fund companies do set a maximum amount the advisor can charge but there is no minimum so it can even be set to 0%. If you hold a DSC fund in your account ask your advisor why they choose that option over the others, and if he has a good answer please let me know, because I have not heard one yet.

2. The only time they call you is when they are trying to sell you something.
If the only time you hear from your advisor is in February when it is time to make your RRSP contribution, or they are trying to get you to buy a certain investment, then chances are that the advisor is more concerned with their income then your savings. This tells me that they are only interested in speaking with you if there is a chance that they will earn a commission and not really interested in your future.

3. They take days to return your calls.
Many people consider it a good sign if their advisor is too busy to answer the phone. This can be seen as a sign that they are a good advisor with many happy clients. To me it tells me one of two things. They have poor time management skills or they are a good salesperson and have taken on more clients then they can properly serve in an effort to make as much money as possible. An advisor who has the client’s best interests in mind will only take on as many clients as they can serve, even if it means turning away potential business.

4. They have changed companies more then once and got you to move your Investments when they changed.
It is possible that the advisor has good reasons for moving, but this is a common tactic used by many advisors in an effort to maximize their own income. When a new advisor moves funds over from the old company to the new one it usually generates a commission for them, and in most cases will create extra costs for you.

5. They have no financial education.
I am the first person to admit that having a bunch of letters after your name does not make you a good advisor, nor does it mean you are an ethical person. However, if an advisor has their client’s best interest in mind, I believe they should make some efforts to improve themselves though continuing education. If they are not willing to do this then I would look for someone who is. There are many financial designations out there. CFP, R.F.P., FCSI, CIM, FMA, Ch.F.C, R.F.P. This is by no means complete list but includes the most common designations.

6. They have not told you how they get paid.
Regardless of how your advisor gets compensated you as a client should be made aware of the compensation by your advisor. An honest advisor should be upfront about the fees you pay, the income they earn and should have nothing to hide. If they are making a recommendation they should let you know the different options which one they think is best, and if they get paid more for it then another option they should let you know why it is worth the extra cost. Your advisor should offer this information to you and not only mention it if asked.

7. You feel pressure to make decisions quickly.
If you are being told that you need to act right away or you are going to miss out on a great opportunity, chances are it is a line and nothing more. Purchasing investments can be a big decision and you should be encouraged to take some time to review your options before jumping into anything.

If any one of this situations applies to you, then you need to review the relationship you have with your advisor and consider looking for other options. If more then one applies I would start the search today.

Ryan Rohloff FMA, FCSI
http://www.atlasfinancialplanning.ca

When it comes to investing, most of the people may think of the size of the amount needed to kick off with an investment. The common perception of investment is “I need a lot of money before I can even think of investment”. This statement may not be true as there are always ways to invest if you do not have much money in hand.

Now, if you have $1,000 to start with, where should you put the money?

1. Pay Down and Pay Off Your Non-Mortgage Debts
The first and the wisest way is to pay down your debts, especially credit cards debts. It is unusual for investment returns to beat credit card interest. Therefore, if you have $1,000 in hand, you should think of paying down your debts first, until they are fully paid up.

2. Create Emergency Fund
After you have paid up the non-mortgage debts or you simply do not have debts, then the next step is to create your emergency fund. An emergency fund is served as a back up should something out of your expectation happens, namely lay-off. You need to save up to an optimum level of between 3 to 6 months of your monthly expenditures.

3. Identify Investment Tools
When you have another $1,000 again, start looking for mutual funds to invest. It is not a good idea to invest in individual company’s stocks. You need more than 10 stocks in your portfolio to reduce the risks of deficit returns.

4. Select the Funds
How do you select the funds? There are too many funds flooding the market and undeniably some of them are underperformed. So the best way is to follow the fund managers and not the funds. Get a fund manager with high reputation of beating the market consistently. However, also take note that with $1,000 to invest, you may be limited to certain funds with low minimum opening balances.

Ng Chung Mun is an expert in life planning, specifically in individual risks management. For more on life planning and mutual funds investment, visit http://www.101lifeplanning.com/investment/3-main-different-types-of-mutual-funds-to-choose-from.php

Choosing an asset allocation, or the mix of stocks, bonds and cash in a portfolio, is the most important decision that you’ll face as an investor. A study by Ibbotson Associates concluded that asset allocation decisions determine about 100 percent of investment performance for those who follow a low-cost, long-term investing strategy. Similarly, according to a Dalbar and Associates study, many investors underperform the market because they deviate from their asset allocation plan during market downturns. Investors who want to maximize their long-term investment returns must develop a risk-appropriate asset allocation plan that they can stick with in good times and bad.

Asset Allocation Step 1: Evaluate Your Risk Profile

A reliable, long-term asset allocation plan starts with a thorough understanding of your risk profile. It’s helpful to think of your risk profile in two parts: your risk capacity, or the degree of portfolio volatility that you can absorb financially, and your risk attitude, or your emotional tolerance for risk.

Risk capacity is influenced by factors like income and net worth, but its largest determinant is time horizon. Early in life, when retirement is far off, your future earning potential can be thought of as a sizable bond, allowing you to allocate the majority of your retirement portfolio to more volatile equity investments. As you grow older and your future earning potential decreases, it’s important to replace those bond-like expected earnings with a higher percentage of bonds in your portfolio. By the time you retire, most of your investments should be in bonds in order to provide a reliable, low-volatility source of income.

Risk attitude is more difficult to quantify than risk capacity, especially for first-time investors who haven’t experienced difficult market conditions. Many investors make the mistake of failing to understand their risk attitude until a market downturn occurs. This usually leads to selling equity investments at the worst time (the bottom of the market), only to miss out on a subsequent market rebound. To help avoid this phenomenon, investors can use resources like risk questionnaires and historical performance charts to help find a stock/bond mix with an emotionally acceptable level of volatility. These tools are far from perfect, however, so when in doubt, it’s best to err on the side of conservatism.

Generally speaking, your most conservative risk dimension (capacity or attitude) should determine your portfolio’s equity/bond split. For example, if you have the risk capacity to handle a portfolio of 80% equities, but can only stomach the volatility of a 70% equity portfolio, you should choose the more conservative allocation. Developing a plan that you can stick with in good times and bad is much more important than maximizing your expected return.

Asset Allocation Step 2: Break Down Equities and Bonds

Once you’ve settled on a risk-appropriate stock/bond mix, you can think about subdividing the equity and fixed income portions of your portfolio. The key to this part of the asset allocation process is finding a suitable tradeoff between simplicity and maximum expected return.

Modern Portfolio Theory tells us that by adding volatile asset classes that don’t move in lockstep with the rest of our investments, we can increase our portfolio’s risk-adjusted return. Based on that principle, consider adding international stocks and Real Estate Investment Trusts (REITs) to your equity portfolio. Companies outside of the US represent more than half of the value of global equity markets, and investors have historically been compensated for the risks that accompany international investing. Likewise, REITs offer a great diversification benefit and give investors unique exposure to the commercial real estate market.

Within your US and international stock allocation, you may also want to boost your exposure to small company and value investments, as investors have historically been compensated for the risks inherent in these investing styles. If you’re not familiar with the arguments for overweighting these equity segments, however, you should probably steer clear of them in favor of simplicity.

To expand your fixed income allocation beyond a broad sampling of the US Bond Market, consider adding Treasury Inflation-Protected Securities (TIPS) and municipal bonds. TIPS are unique because, unlike traditional bonds, their principal and interest payments adjust with inflation, so they offer a government-guaranteed rate of return above inflation when held to maturity. Municipal bonds are appropriate for investors in high tax brackets with taxable investment accounts, as the interest from these bonds is generally tax-exempt in the issuing state and at the federal level.

Portfolios can be sliced and diced in any number of ways, but a more complex portfolio is not necessarily a better one. Wise investors understand that their investing success will largely be determined by their ability to stick with their asset allocation plan, and for that reason, they err on the side of simplicity.

Asset Allocation Step 3: Implement Your Plan

Once you’ve broken down your portfolio into target percentages, all that remains is to implement your asset allocation plan. With literally thousands of funds to choose from, it’s best to narrow down the field by focusing on one factor that you can control: investing costs.

First, you can minimize the impact of many fees, expenses and taxes by investing in low-cost index funds and ETFs. If your workplace retirement account has limited choices, simply pick the lowest cost funds that fill a position in your asset allocation plan. Secondly, pay close attention to all applicable fees and commissions prior to doing business with a brokerage firm or mutual fund company. IRAs and other investment accounts are extremely portable, so there’s no good reason to stick with a high-commission broker. Finally, maximize your portfolio’s after-tax returns by placing tax-inefficient asset classes (e.g., REITs, Bonds) in tax-sheltered accounts.

Once you’ve settled on specific investment choices, help yourself stay on track by formally documenting your asset allocation plan in an Investment Policy Statement (IPS). This document provides an organized framework for recording your investing goals, philosophy and target allocation so that you can help yourself resist the temptation to stray from your long-term strategy. The ideal time to draft an IPS is while the rationale for your asset allocation decision is fresh in your mind.

Conclusion

More than any other factor, your ability to develop and implement a risk-appropriate asset allocation plan will determine your investing success. By thoroughly evaluating your investing risk profile, choosing an appropriate level of portfolio complexity, and picking low-cost investments, you’ve taken a giant step toward your long-term investment goals.

George Watkins is President of West Wind Wealth Management, an independent, SEC-registered investment advisory firm that specializes in index fund and ETF portfolios. A former nuclear-trained Naval Officer, George has a BS in Economics from Duke University and an MBA from Harvard Business School. To receive a free asset allocation recommendation or a personalized portfolio recommendation for as little as $19, visit http://www.invest-it-yourself.com.

Is there a seasonal pattern for investing in the stock market? Like the farmer who must plant his crops as the season turns toward spring and summer, we may benefit from the same type of seasonal thinking.

For example there is an old Wall Street saying “Sell in May and go away” and we also know that October (the onset of winter?) can be a troubling time. Does this suggest there is good reason to take a seasonal approach to investing?

From the farmer’s point of view, it is a simple fact, that there is a time to grow, a time to harvest and a time to sit idle and prepare for the next growing season. The farmer knows this and year in and year out, acts accordingly.

Perhaps as investors, we would all do well if we followed his example. The challenge for the investor is his ability to tell when a seasonal change has occurred. How can he know that the ill winds of a bear market are approaching? How can he tell if a sudden market rise is just the calm before another storm?

Unfortunately, he can’t know exactly, but he can make adjustments as the facts warrant. He most certainly should not make the mistake of investing heavily as the clouds of winter appear on his doorstep. Nor should he stay hunkered down inside his home unknowing that rough winds no longer shake the darling buds of May.

So, what is your guess about the season we find ourselves in today? The stock market has risen 80% since last April and continues to rise slowly and evenly. Is it Spring? Is it Summer? While there is no hard and true answer, we can say we are in the growing season for sure. We know for certain that the winter has past.

I think it is early summer. We have had the fast growing season behind us and now we are in for some steady growth. This does not mean we will have a lazy summer because we have lots of work to do. We have to protect our crops- water them, weed them and make sure nothing from the outside like pests and birds destroy what we have carefully tended. For our investment portfolios this means weeding stocks which are not thriving and adding to those which are showing the healthiest growth. It means staying attune to the news to make sure no “pests” from the outside or events unseen will harm our portfolios (think Greece).

We must also remember that Mother Nature can interrupt our summers with unpleasant surprises in the form of storms and tornadoes and worse. For the portfolio, we too will be subject to storms (surprising economic numbers) and tornadoes (a financial scandal?). In Florida we have to be acutely aware of the start of the hurricane season, so extra preparation is a must. Portfolio diversification and common sense can help us get through a “Category 3″ as well.

Are you hunkered down in the house investing in 0% money markets as if winter were still upon us? Please, take a look out the window. For now at least, the flowers are in bloom and summer is here and it is not too late to make some investment returns on your money.

This summer season has a way to go.

Visit http://onthemoneyradio.org for weekly commentary and money advice that covers the entire financial spectrum which also airs on my weekly radio show, “On The Money!”

Steven L. Pomeranz, CFP is a 29 year investment management veteran and host of “On The Money!” which airs on NPR station, WXEL in South Florida. He concentrates on serving high net-worth individuals and has been named one of the Top 100 Wealth Advisors 2007, by Worth magazine (October 2007 Issue), honoring America’s premier financial and wealth strategists.

What is the best type of investment? The short answer is ‘it depends’. There are a number of factors to take into consideration when investing a lump sum.

What is your investment time frame?

Your investment time frame ends when you need access to your investment capital rather than the income from that capital. In general, if you need your capital within five years, it will be best to put your money into an investment with a fixed value to avoid the risk of making a loss.

Do you need income from the investment?

Investments can produce a return by way of income (interest or dividends) or capital gain (increase in the value of the investment) or a combination of the two. Capital gain is usually only available to you when you sell the investment. Some income producing investments have a fixed rate of return (such as bank deposits or finance company debentures) and some have a variable rate of return (such as fixed interest funds or perpetual bonds). A fixed rate has the benefit of certainty of what your income will be, whereas a variable rate offers the possibility of higher returns if market conditions change favourably.

Do you want your investment to grow in value?

If your aim is to maintain the purchasing power of your capital or increase your wealth over time then your investment will need to grow in value by at least the rate of inflation. A diversified portfolio of shares or a property investment is arguably more likely to achieve this objective over the long term than a fixed interest investment.

How much do you want to invest and what other investments do you have?

Your total investment portfolio should be spread amongst different types of investments in order to reduce your risk – in other words, don’t put all your eggs in one basket.

How much risk is it appropriate for you to take?

Your age, the amount of money you have to invest, and your personal feelings about taking risk are some of the factors that will determine how much risk you should take with your investment. In general, the less risk you take, the lower your investment return will be. Make sure you know what risks are involved with your proposed investment and that the return reflects the risks.

What is your marginal tax rate?

Investments are taxed differently depending on how they are structured. If you are on either the lowest or highest marginal tax rate, some investments will be more tax effective for you than others.

Do you understand the proposed investment?

Investment products are becoming increasingly complex as different providers seek to outdo each other and attempt to increase potential returns without increasing risk. Be wary of investing in something that you don’t understand.

As you can see, the best investment for you is one that fulfills all the requirements that you have. What is best for somebody else may not be best for you. Be clear what your criteria are and then use them to evaluate a number of different options. If in doubt, get some good advice!

Liz Koh is a financial planner and the author of the best selling book – Your Money Personality: Unlock the Secret to a Rich and Happy Life, Awa Press, 2008, available from http://www.awapress.com

For Liz’s best tips for financial security, visit her website http://www.moneymaxcoach.com to receive your free e-book “8 Steps to Financial Freedom”.