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Just as in nature, there are
seasons in the world of investing. Recently, the investing
climate has changed considerably. Recognizing those changes
and adjusting how your money is invested can dramatically
improve how much you will earn in 2004. Read on to find out
what I recommend to my Private Wealth Management clients.
First, let’s examine the changes in the interest rate
environment. Interest rates have been steadily declining
since the early 1980’s. A client recently told me how he
bought a home with an interest rate of almost 18%--and was
glad to get it! Now, homebuyers are borrowing money at less
than 6%. When I started in the industry back in 1987, I
remember offering 30-year government agency bonds paying
12%. Now a 30-year Treasury bond yields 5%.
The long-term decline in interest rates over the last 20
years has resulted in rates that are at 40 year lows. The
next trend is going to be for interest rates to rise. I
don’t expect them to jump up overnight, but to rise slowly
over the next several years.
As interest rates decline, the value of an investment in
bonds increases. Those investing in bonds and bond mutual
funds over the last 20 years have been handsomely rewarded.
But the opposite will occur over the next 10 years. Those
who continue to invest in bonds and bond mutual funds are
going to find their return significantly lower than what
they are used to.
Once considered a safe and stable investment, bond investors
will be at increased risk of falling behind. It is likely
that those investing in bonds could have an annual return of
3-4% or less. You should reduce the percentage of your
portfolio that is currently allocated to bonds. I am
currently recommending only 20% of my conservative clients
portfolios be allocated to bonds.
I am recommending that my clients turn to real estate based
investments for that portion of their portfolio designed to
provide stability and income. Real estate does not react to
changes in interest rates the same way that bonds do. In
particular, I am recommending that my clients allocate 20%
of their portfolios to a combination of public and private
Real Estate Investment Trusts (REITs). These should provide
an income stream of 6%-8% per year plus some additional
capital appreciation.
It is important that caution be exercised when investing in
REITs. There are many different areas of the real estate
market in which you can invest including retail shopping
centers, malls, office buildings, warehouses, condos or
apartments. Each comes with its own set of risks, but
properly managed REITs should be an important part of any
portfolio.
Now, let’s take a closer look at changes in the stock
market. Stock investors have just been through 3 terrible
years of losses from 2000 through 2002. This has caused many
investors to flee stocks for the relative safety of bonds.
But the economy has now turned the corner; businesses are
recovering, and the markets should continue to do well over
the next few years. I am recommending that my clients
increase the percentage of their portfolios allocated to the
stock market in 2004 to 50%.
Investing in the stock market can be volatile, so it is
vital that you take steps to protect yourself. My firm has
developed a portfolio management and protection system so
revolutionary that we are patenting several aspects of it. I
will share more about it in a future article, but those
investing in the stock market need to learn from the past.
The times of buying a stock or mutual fund, throwing it in
the drawer and forgetting about it are over.
I recommend my clients keep the remaining 10% of their
portfolios available as an emergency reserve and as money
that will be available to take advantage of unique
opportunities as they arise.
Remember, the individual investments you choose are vital to
your overall success. Unless you have a trusted advisor
actively watching your portfolio, don’t just throw it in the
drawer and forget about it.
If you would like to learn more about the specifics of my
client recommendations, give me a call toll-free at
1-877-827-1463, email me at jeff@guardingyourwealth.com or
go to www.guardingyourwealth.com. I am happy to help in any
way I can.
Mr. Voudrie is a Certified Financial Planner, a nationally
syndicated columnist and the President of Legacy Planning
Group, Inc., a Private Wealth Management firm in Johnson
City, TN.
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