Traditional Investment Wisdom


Published For The Corridor

The Money Issue

We have all seen our 401k’s or IRA’s stagnate for some time. Perhaps our expectations were a little too high and now we need to face the reality that we cannot spend as much on the things that we want, but spend only for the things that we need. As a society we have come to expect instantaneous gratification and double digit returns-- now we cannot believe that we have lost one-third to one-half of our financial investments. In 2000 after the tech bubble burst, we had a terrible bear market for two and one-half years and many people lost a lot of money. It reminds me of the days when former Chairman Greenspan would say the market is experiencing “irrational exuberance...” Yes it is true that we did not have skyrocketing unemployment with many businesses downsizing or even closing; or the high rate of home foreclosures that we are now facing-- but we did survive it and there is a light at the end of the tunnel. We just don’t know how long it will take, and it is the fear of the unknown that makes us nervous. This is a time that we need to get back to the basics.

Set Realistic Goals and Stick to Them - The key to successful investing is to set realistic goals and stick to it and not let fear or greed get in the way. If you are within 5 years of retirement, make sure your investment risk tolerance reflects that. Many people want the double digit returns, but cannot tolerate the up and down rollercoaster ride we have seen the markets do.

Put Your Plan in Motion - Once you have set your goals, you can begin to put your plan in motion. As financial professionals, we use a technique called dollar cost averaging. Dollar Cost Averaging is a systematic, disciplined approach to investing that enables you to take the emotion out of it. It is a convenient way to build up a significant portfolio and withdraw income during retirement. For example, if you are buying an investment such as a particular stock or mutual fund, you are buying it at different prices at different times. It is the average price per share over the time you invested your money.

Diversify - by company, by industry, and by country. Rather than having all your eggs in one basket, if you select many high quality companies, spread across many industries, from all over the world, you will likely find more, better bargains, and protect yourself during down markets by having low correlation among your holdings. This means that if you do not know what your mutual fund’s holdings are, then you need to seek a financial professional. Your portfolio may decrease less in value, and may recover more quickly and fully, than a more concentrated or restrictive portfolio would.

Adjust Your Spending Plan - Cutting back spending by 25%, so we do not dip into the principal, may mean that we do not get to eat out as often as we used to, or we cut back on extravagant vacations by looking for bargain prices and getting more for our money.

Tax Strategies - Review available tax reducing strategies with your financial professional. Your financial professional will know how to help you save money in taxes.

The current financial and economic meltdown has helped us retool how we do business, how we should spend, how we should invest. Markets run in cycles and we need to keep things in prospective. We still live in the most prosperous and greatest country in the world, where we are given many opportunities to live out our dreams and use our talents to our full potential.

As the Stimulus Plan is set to help unclog our credit markets and lift the housing market from a continual downward spiral and re-regulate the financial and banking sector, we must focus our attention on getting back to basics.

Ms. Medaglio-Barrera, is the President of BMR Global Wealth Management Group, Inc., a full service wealth management and financial planning firm; and a principal of The Mediation and Collaborative Action Group, both located at 555 Broadhollow Rd, Suite 422, Melville, NY 111747.

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