Member of the Month July 2013
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There is some good advice on here and some that is a bit sketchy. This is my job so I will give my 2 cents. The following is in no way a recommendation to buy or trade on the information given. Investing is risky so do your own research before investing. (There you go FINRA...that was my disclosure)
Diversification
Everyone thought diversification would prevent you from losses when the stock market would fall. How did that work for you in 2008?
Asset Class Diversification.... Most people were or are diversified among one asset class...such as mutual funds or stocks...These have no downward floor when the market drops unless you are using options and a few other advanced strategies that the general public doesn't know. So in 2008, people lost their ass because they weren't completely diversified.
Different Asset Classes
Stocks, Bonds Mutual Funds
Managed Funds
Annuities
REITS
Precious Metals
Land
Home owning/renting
CDs,Money Market
etc.
Ex: Not diversified among asset classes...Small Cap, Mid Cap, Large Cap, International, Tech, Google, Apple, Ford...This is diversification among one asset class.
Diversified among asset classes....Managed Funds, Fixed Indexed Annuity (not variable because its separate account is only the above mentioned),Non-Traded REIT,Money Market
The managed funds are invested in mutual funds, stocks and bonds... They are managed by a professional that should have an options hedge for downward pressure. This will limit losses to lets say 5%. FIA work as follows..when the market drops you don't lose a penny, when the market goes up, you get a portion of the gains. Non-Treaded REITS (Alternative Investments)-They may be invested in lets say storage units across the country. They take a pool of small investors and lump the money together to buy and sell Storage units across the country as a large investor would. They typically pay a dividend around 7% and each share is 10 bucks and since its not traded, it remains at 10. When the markets drop, these investments typically aren't affected because people still pay rent to these types of investments. Then you need your emergency money...cash, savings, money market for emergencies. This is diversification among asset classes.
Some classes will be negative but the other classes will help off set those losses. So instead of losing 30-50%, you may lose 5% or even 0.
Accumulation vs Income Phase
Accumulation is when we all make our money and use more risk. But the same principles cant be used when we transfer to the income phase. That is taking your nest egg and finally turning it into income. Like someone said above...when you invest regularly in the MARKET you buy low more often then you buy high and over time you will acquire more money. However, if you use the same principles in the MARKET while in retirement....YOU TAKE MORE MONEY OUT LOW MORE OFTEN THEN YOU DO WHEN IT IS HIGH. This can devastate your portfolio in retirement. Again, this is when asset diversification comes into play. Realize there are two different periods in your life. You obviously want to play it safer and be less invested in the market the older you get
I could go on and on, but I may lose some people. We can talk about taxes or using life insurance as investments, the different types of annuities and when to use them, fees, indexing, etc. The bottom line...educate yourself before you invest. Its your money. People near retirement, talk to a retirement advisor or educate yourself on the shift into retirement. Young people...start now and educate yourself on general investment. You will be surprised how fast you can pick it up.
I am a registered investment advisor, insurance agent and stock broker which means I can buy and sell any investment out there. I am not pushing a specific type of investment. This is as unbiased as it gets. Not all investments are bad, most people use them in the wrong way. Thanks for hearing me ramble
Diversification
Everyone thought diversification would prevent you from losses when the stock market would fall. How did that work for you in 2008?
Asset Class Diversification.... Most people were or are diversified among one asset class...such as mutual funds or stocks...These have no downward floor when the market drops unless you are using options and a few other advanced strategies that the general public doesn't know. So in 2008, people lost their ass because they weren't completely diversified.
Different Asset Classes
Stocks, Bonds Mutual Funds
Managed Funds
Annuities
REITS
Precious Metals
Land
Home owning/renting
CDs,Money Market
etc.
Ex: Not diversified among asset classes...Small Cap, Mid Cap, Large Cap, International, Tech, Google, Apple, Ford...This is diversification among one asset class.
Diversified among asset classes....Managed Funds, Fixed Indexed Annuity (not variable because its separate account is only the above mentioned),Non-Traded REIT,Money Market
The managed funds are invested in mutual funds, stocks and bonds... They are managed by a professional that should have an options hedge for downward pressure. This will limit losses to lets say 5%. FIA work as follows..when the market drops you don't lose a penny, when the market goes up, you get a portion of the gains. Non-Treaded REITS (Alternative Investments)-They may be invested in lets say storage units across the country. They take a pool of small investors and lump the money together to buy and sell Storage units across the country as a large investor would. They typically pay a dividend around 7% and each share is 10 bucks and since its not traded, it remains at 10. When the markets drop, these investments typically aren't affected because people still pay rent to these types of investments. Then you need your emergency money...cash, savings, money market for emergencies. This is diversification among asset classes.
Some classes will be negative but the other classes will help off set those losses. So instead of losing 30-50%, you may lose 5% or even 0.
Accumulation vs Income Phase
Accumulation is when we all make our money and use more risk. But the same principles cant be used when we transfer to the income phase. That is taking your nest egg and finally turning it into income. Like someone said above...when you invest regularly in the MARKET you buy low more often then you buy high and over time you will acquire more money. However, if you use the same principles in the MARKET while in retirement....YOU TAKE MORE MONEY OUT LOW MORE OFTEN THEN YOU DO WHEN IT IS HIGH. This can devastate your portfolio in retirement. Again, this is when asset diversification comes into play. Realize there are two different periods in your life. You obviously want to play it safer and be less invested in the market the older you get
I could go on and on, but I may lose some people. We can talk about taxes or using life insurance as investments, the different types of annuities and when to use them, fees, indexing, etc. The bottom line...educate yourself before you invest. Its your money. People near retirement, talk to a retirement advisor or educate yourself on the shift into retirement. Young people...start now and educate yourself on general investment. You will be surprised how fast you can pick it up.
I am a registered investment advisor, insurance agent and stock broker which means I can buy and sell any investment out there. I am not pushing a specific type of investment. This is as unbiased as it gets. Not all investments are bad, most people use them in the wrong way. Thanks for hearing me ramble
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