Military Officer - August 2008 - (Page 68)

any of these might seem of formidable proportion, they probably are no worse than the concerns that bothered investors in the 1970s, the 1980s, or any other period. In short, investing for a ﬁnancially healthy retirement still calls for the same kind of commonsense approach that has worked in the past: like CDs, short-term bonds, and money markets,” recommends Greg Womack, CFP, of Edmond, Okla. MOAA offers a calculator that takes these factors into consideration. Go to www.moaa.org/calculators. Click on Investment Calculators and then Asset Allocator. Diversify your equity investments Don’t try to time the market “It’s better to invest regularly, without regard for the general condition of the economy or the direction of the stock market,” says Darrell J. Canby, president of Canby Financial Advisors in Natick, Mass. “Timing the market — trying to determine the best time to buy speciﬁc stocks — rarely works,” he says. “You might get lucky once in a while, but your luck isn’t likely to last.” Rick Willeford, a CPA and CFP in Atlanta, says, “Market-timing and day-trading are for suckers.” Select stocks or mutual funds only on the basis of sound fundamentals. Make sure the portion of your portfolio you have invested in equities is diversiﬁed properly. Investing too much in a single industry or a single company will put you at the mercy of a serious downturn in that company or industry. Mutual funds offer both diversiﬁcation and professional management. “You may want to use ‘baskets’ of stocks in lieu of more volatile individual holdings,” says Womack. “These baskets might consist of mutual funds, exchanged-traded funds, closed-end funds, and unit investment trusts.” Avoid reacting to daily economic reports “Timing the market — trying to determine the best time to buy speciﬁc stocks — rarely works.” — Darrell J. Canby Rebalance your portfolio at least once a year “In an effort to sell newspapers and air time, investors are trained by the media to search for the next economic number of the day,” says Jordan Kimmel, managing director of Magnet Investment Group, Randolph, N.J. “In reality, it is nonsensical to react to daily economic reports. No investment strategy is better than identifying superior companies and holding them while letting your money compound over time.” Maintain an appropriate asset allocation All ﬁnancial advisors agree it is critical to maintain an asset allocation suitable to your personal circumstances. Asset allocation refers to the process of dividing your investable assets among stocks, bonds, and cash. The mix that is right for you will depend on factors such as your age and your risk tolerance. If retirement is years away, most experts recommend relatively heavy investments in equities, perhaps 60 percent or more of your total portfolio. “However, if your [retirement] time horizon is less than three years, stay in ﬁxed investments RESOURCES ■ For more investment resources, visit MOAA’s online Financial Center at www.moaa.org/financial. After you have allocated your assets, it’s important to rebalance them at least once a year. As the price of equities goes up or down, the ratio you have established will change. If the value of your equities has risen, you might want to sell some to restore your original ratios. If their value has dropped, moving more cash into equities might be appropriate. “If your portfolio is within an IRA or other retirement plan, consider rebalancing every quarter,” Womack says. “If it is in a taxable account, rebalance at least annually, perhaps more [often] during extremely volatile periods. For [a] rebalancing strategy to work, you must own assets that don’t react the same way over differing market conditions.” Stay the course “Creating a plan and sticking with it under all market conditions is the way to maximize your returns,” Kimmel says. One helpful technique is called dollar-cost averaging — putting the same amount of money into equities or mutual funds at regular intervals, regardless of swings in the market. This way, when prices are higher, you are buying fewer shares; when prices are lower, you are buying more shares. There is, of course, much more to the maintenance of a retirement portfolio suited to promoting a good night’s sleep during these times. Sticking with these commonsense fundamentals will go a long way toward achieving that end. MO 68 MILITARY OFFICER AUGUST 2008 http://www.moaa.org/calculators http://www.moaa.org/financial

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Military Officer - August 2008 Contents MOAA Online From the Editor From the President Your Views MOAA Directory Rapid Fire Washington Scene Chapters in Action Financial Forum Ask the Doctor MOAA Member Services Cover Story: A Stronger Voice Virtual Combat Mental Floss Steady as She Goes Pages of History Faces of MOAA Member Books Information Exchange Advertising Index MOAA Calendar Sounding Taps MOAA Scholarship Donors Encore

Military Officer - August 2008

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