Show #509 Airing Sunday, 1/24/10
It sounds like the financial outlook for 2010 is still very hazy, so how do you build a sound investment portfolio? You’ll need sound advice. Let’s hear what Doug Piper and Bob Leggett recommend. Doug is a Vice President and Client Advisor and Bob is the Chief Investment Officer, both with FirstMerit.
Question:Doug, you have several tips for tuning up our investments. What's number one?
Answer: First on our list is “re-evaluate your risk tolerance.”
We have had some wild market conditions which has led many individuals to question their prior assumptions about willingness to assume risk
It’s important that you don’t evaluate risk in a vacuum - for example solely as a reaction to the wild market; keep in mind what you are trying to accomplish
And there’s an easy way to determine how much risk you may need in your investments:
If you can easily reach your financial goals, you may not have to take on much risk. Conversely, if your financial goals have become a stretch, you may need to take on significant amounts of acceptable risk to reach your goals.
Question:Doug, number two on your resolution list is Redefine you Goals. Is this in response to the market again?
Answer: It’s a good idea to periodically look at your goals to make sure you’re headed in the right direction, no matter what has happened in the market.
However, because of recent market conditions, it’s especially important now.
The market turmoil of the last few years, coupled with the market disruptions of 2000 – 2002, may seriously threaten your ability to reach your target. You have to take a serious look at what is both doable and acceptable. You can then reset the actions you need to take to get to the new goals
Changing your goals may dictate that you
change
- your savings rate
- the date at which you can afford to retire
- how aggressive you need to be with your investments
- or what you can expect to have available to you in the future for your disposal
Question:Bob, as long as we're reviewing our financial goals, should we also review who is helping us achieve them?
Answer: I would at least add “re-examine your team” to your resolution list.
This doesn’t mean you have to change them, but you want to at least evaluate if you are satisfied with their work.
To do that, ask yourself a few questions:
- Does your team of financial advisors fit your needs now?
- Do they have the expertise, the focus, the communication skills, the attention to detail, and the time to give you the service that you need?
- Where are the gaps? Is there any expertise missing from your team, and if so what expertise can you add to close or eliminate the gap
The answers to these questions will make it clear if your financial advisors are the right ones for you at this point – or if it’s time for a change.
Question:What's your number four tune-up tip?
Answer: You’ll want to evaluate your asset allocation.
Is your current level of cash, stocks and bonds the right mix for you?
You’ve already looked at your risk tolerance and your goals, and you know your current situation.
Use this information as you look at your asset allocation.
And also consider the financial gap you have to close and the time you have to close that financial gap.
Question:Doug, Bob just mentioned the importance of asset allocation - the right mix. And your last tip builds on that: Examine the vehicles you are using to drive your investments.
Answer: This is very important. Have you used individual stocks and bonds, mutual funds, or ETF’s, or a combination of investment approaches?
You should be aware of the variety of investments available to you - and understand the pros and cons of the different investment avenues.
Resolve to re-evaluate, redefine, and re-examine your investment resources so you can realize a resplendent retirement! My thanks to Doug and Bob for their real-life investment resolutions.
