The process of rebalancing forces an investor to sell high and buy low. Many people recommend rebalancing on regular intervals. Some say to do it at least annually and some as often as quarterly. I believe it is better to let the market tell you when to rebalance. I preferred to rebalance after we have seen a sustained period of either strong or weak returns in the markets. This helps keep the risk level of your portfolio consistent with your plan and avoids being overexposed to stocks before a downturn or being underexposed during an upturn. Think of the markets like you do your health.  When are you most likely to catch a cold? After a sustained period of good health. When do you get better? After you have been sick a while. Markets are not much different.

Let’s take a simple example from the last few months; suppose an investor’s portfolio stood at $1,000,000 just a few months ago on October 1, 2011 and on that day the investment mix was right at their risk targeted allocation of 60% stocks (represented by the S&P 500 Index) and 40% bonds (represented by the Barclay’s Capital Aggregate Bond Index). By the end of February 2012, only five short months, the strong relative performance of stocks over bonds would have increased the stock allocation to 64% and resulted in a portfolio value of $1,132,168. That’s an over 13% gain in just five months! While it is always nice to enjoy positive returns like this in a short period of time, it is also an appropriate time to consider rebalancing. Taking profits on the stock portion and reallocating it to lower risk bonds in this example would make sense for an investor concerned with maintaining a consistent risk level in their portfolio.

Clearly, it is important to review your mix of assets from time to time. Rebalancing the mix back to an appropriate level will help an investor guard against being over or under exposed to equities at the wrong time. This is especially important at moments like now when optimism has increased and everything is beginning to feel fine.

Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP^® and should not be construed as investment advice. Rebalancing may be a taxable event, before taking any specific action be sure to consult with your tax professional. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.

Market risk is the chance that an investment’s actual returns will be different than expected due to overall price fluctuations in the market. Under this definition of risk, equities have the most risk and cash has the least. Market risk, however, is not the only risk out there for retirement savers.

What about the chance that you might not have enough set aside to meet your retirement spending needs, a savings shortfall risk? This can be compounded by retiring too early and/or spending too much in retirement. Longevity risk is the chance you will live much longer than expected and outlive your savings. Inflation risk is the chance that inflation will erode the purchasing power of your savings. In all of these cases, the “riskier” asset is cash and the “safer” asset is equities. Other risks to watch out for include legislative risk, the risk of law changes to taxes, pensions, Social Security and Medicare. What if someone dies early or becomes disabled? Fire consumes your home? What if you get sued? Catastrophic events risk is often overlooked and can be hedged with insurance and proper estate planning.

Investors need to rethink the concept of risk and how it can change over different life stages. As a young saver you have time on your side and many years of future income to put toward retirement savings. Market risk should not be a big concern. The bigger risk at this stage is the savings shortfall risk. You should invest for high returns and make sure you are getting a savings program going.

Savers in midlife can also accept high levels of market risk. They still have very long time horizons and many future years of income and contributions. They should still seek higher returns and watch that they are saving enough to avoid a shortfall. They should reduce their market risk as they near retirement.

Once retired you have no more future income to fund contributions and must now shift your focus to balancing market risk with longevity and inflation risk. This still requires seeking attractive returns and maintaining a healthy equity exposure. Longevity is the greatest risk for new retirees.

A senior retiree has likely spent down some of their retirement savings and needs to focus more on minimizing losses while at the same time generating returns that keep pace with inflation. Now is the time to pay attention to market risk yet balance it against the risk of losing purchasing power.

Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP^® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.

So how do we invest in this crazy world and keep our sanity? There is really no secret or magic formula. Below are some fundamental guidelines for investing that I believe can guide you through any type of market. The information age we live in has made investing more complicated and confusing than ever. Individual investors are bombarded with an information overload on a daily basis. My advice is to turn down this “white noise” by doing the following:

Know and keep your objectives in place, only altering them when circumstances force a change. Consider adhering to my Five Tenets for Investing:

1. Invest with a plan. Sounds basic enough but have a specific plan and time frame for your money.
2. Diversify. Invest globally and maintain exposure to a variety of asset classes.
3. Invest with a professional. Get some help. A professional can help you put a plan together to reach your goals and manage risk. More importantly, a professional cam help take the emotion out of investing by injecting some rational thinking and perspective. This is crucial during downturns.
4. Invest continually.  Up or down markets, keep reinvesting and adding to those accounts.
5. Have patience. Probably the most important tenant of all. The biggest pitfall I see for investors of all ages is not sticking to their plan. Too often, investors change the direction of long-term plans by making short-term decisions based on emotion. Decide if you are an “investor” or a “trader.” Investing should only be undertaken with a long-term time horizon.

Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP^® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability and differences in accounting standards. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance.  Your comments are welcome.  Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.

First let’s look at the positive side. Despite all the negative sentiment out there, it is not all bad news when it comes to the economy and the financial markets. I would consider some of the following as positives to keep in mind:

• The U.S. economy has been fairly resilient and it does not appear that we will slide back into recession.
• We have a very accommodating monetary policy. The Fed is expected to keep interest rates low for a considerable period of time.
• Corporate earnings continue to be very strong.
• Stock valuations appear very attractive by many measures. P/E Ratios are at the low end of their range the last 20 years. Many high quality stocks pay dividends that are higher than long-term Treasury bonds.
• As of this writing in early December, retail sales have been strong during the holiday season.
• Nobody is buying stocks. According to ICI data, investors have pulled money from equity funds for seven straight months. Fund flows tend to be a pretty good contrarian indicator. When everybody is buying stocks they are usually headed for a fall and periods of outflows tend to be indicative of market bottoms.

But don’t get too excited. There are a number of negatives counterbalancing the positives:

• The European debt crisis is far from over. It will almost certainly throw Europe into a recession this year and it poses a severe threat to the banking system.
• The majority of the developed world countries have massive debt issues and an aging demographic problem.
• 2012 is an election year and we already have a massive amount of political discord and uncertainty. The super committee was a total failure.
• Unemployment is expected to stay high. Even though the U.S. economy is growing, we are simply not growing fast enough to create enough net new jobs to solve the problem.
• The Fed, as well as other central banks worldwide, may be running out of options to combat our economic malaise.

Nobody knows for sure how all this will play out. Maintain balance in your portfolios. Stay diversified. Most importantly, stay patient. It may take a while for this tug of war to end.

Damien helps individuals invest and manage risk. He is a CERTIFIED FINANCIAL PLANNER™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.

Many consumers planned on their home values being a significant contributor to their retirement. This is not going to happen for most. The combined effect of lower housing values, investment declines, longer life expectancies and the prospect of low returns going forward make this a real game changer when it comes to retirement. Most consumers are going to have to work longer, save more…a lot more, and be more realistic about their spending and rates of withdrawal during retirement.

Working a few more years can have a tremendous impact on your long term retirement success. Every extra year you work is one less year you have to support yourself in retirement and one more year of additional savings toward retirement, a powerful double whammy. If the rates of return on our retirement savings are going to be below average then we simply will need to save more. Consider a simple example; assuming you could earn a static 6% annual rate of return you would need to save $1,021 per month for 30 years to accumulate $1 million in a tax-deferred account, like an IRA or 401(k). A 20-year period would require you to save $2,195. Better get going!

So let’s assume you accumulate a $1 million. Great! That’s a lot of money. But how much income will that reasonably provide someone during a 25-30 year retirement? Less than most think. The general consensus among financial advisors is that retirees should plan on a portfolio withdrawal rate of 4% to 5%. This is the percentage of the portfolio’s value that is withdrawn in the first year of retirement. The amount is also assumed to be increased each year for inflation. So, if you have $1,000,000 saved you can reasonably expect to have that account support a draw of $40,000 to $50,000 per year plus inflation for a 25 to 30 year retirement period. Doesn’t seem like much does it? We all need to rethink retirement!

Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP^® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.

The economic outlook for many of the smaller, less developed economies – the so called emerging markets – is much different.  hese regions have much better growth rates, trade surpluses, favorable demographics and lower deficits.  This economic outperformance is expected to continue. One byproduct of this better economic backdrop is a favorable bond market environment. In countries like Brazil, Chile, Mexico, South Korea and Australia, to name a few, interest rates are higher and real yields (average bond yields minus inflation) are positive. The currencies of these more dynamic economies are also expected to appreciate against the U.S. dollar, the euro and the British sterling.¹

Contrast that with the bond market here in the U.S. and Europe. We have record low interest rates on our government bonds and real yields have turned negative in 2011.¹ These low yields point to an environment of very low returns on government bonds going forward. In addition, our massive deficits most likely will necessitate a decline in currency valuations over time  In short, not a lot on the upside going forward. 

In summary, the economic conditions here in the U.S. and Europe are expected to languish. But this is not true everywhere. Yet, many investors do not have any international bond exposure. I would take a look at the composition of your bond allocations.  Consider overweighting the bond markets and currencies of the faster growing emerging markets and reducing exposure to bonds in U.S. and European markets. Be sure to look for bonds that are un-hedged to the U.S. dollar. In this environment you want the currency exposure for additional appreciation potential.

1.Wells Fargo Funds Management, Investment Perspectives, International Fixed Income, 10-2011 
Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP^® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Additional risks are associated with international investing, such as currency fluctuations, Political and economic stability and differences in accounting standards. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance.  Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.

Probably the biggest lesson from 2008 is to keep your emotions in check. Many investors sold in a panic when stocks were at their lows back in late 2008 and the beginning of 2009. Sadly, many are doing the same thing right now. I have been in this business for over 20 years and have seen my share of bear markets. During this time, I have never seen a client get it right when it comes to market timing during a downturn. Those who get out may miss the absolute bottom, however, they never get back in until after the market rallies and is at a higher level than when they exited. In every case, missing all or a portion of the rebound resulted in them having less money in their accounts down the road. As generic as it sounds, staying the course does prove to be an effective strategy over the long term.

A recent study of 401(k) participants by mutual fund giant Fidelity Investments confirms this point. The study concluded that investors who sold equities during the market volatility in 2008 and 2009 did worse than those who stayed in stocks. The study showed that 401(k) participants who dumped stocks from October 1, 2008 to March 31, 2009 (when the S&P 500 dropped 31%) and had not returned to equities as of June 30, 2011, had an average account balance increase of just 2%. Those that maintained some equity allocation in their accounts during the same period saw their balances rise 50% on average.1 Even a temporary exit from the market was enough to damage future account values. Participants who exited the stock market completely, but then returned to some level of equity allocation after the market decline, saw an average account balance increase of only 25%.2

So here we are today confronted with the same type of uncertainty and fear as before. The question is; did we learn anything from 2008? No doubt we have some serious headwinds facing our economy. Now, however, is not the time to panic out of the stock market. If you plan to reduce you stock exposure, do it later, after the markets recover, not now in the midst of a downturn. Exiting stocks during a downturn has proven over and over again to be a losing proposition.

1. Bloomberg, Selling Burns 401(k) Investors Who Dumped Stocks, Fidelity Says, 8-18-2011
2. U.S. News & World Report, Planning to Retire, 401(k) Savers Who Stuck to Stocks Saw Gains, 8-19-2011