Archive for May, 2009

Will You Be There When Opportunity Comes Knocking?

Published May 31, 2009 Finance , Financial advice , Israel , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

If you don’t follow the stock market on a daily basis, you might be more relaxed than the day traders who follow every tick. However, you might have also missed seeing the greatest six-week rally in the market since 1938. But who cares? For most people, the point of investing in shares is not timing the market in the short term; the aim of the stock investor (as opposed to trader) is to buy quality companies and hold onto them for the long term.

Since no one, including pundits, can predict stock prices, you need to have a way to decide whether to buy now, and if so, how much money to dedicate to stocks. For example, a client called me a few months ago to sell out his stock portfolio. He wanted to move the money from the equity mutual funds (invested in stocks) to CDs (certificates of deposit in banks that are insured). When I asked him if his investment time frame had changed, he said, “No, I just want to be out of the market now until things get better.”

A short time later, after a 20% upswing in the market, he called again, wanting to buy back into the market. I reminded him of our previous conversation where I had told him that it’s nearly impossible to time the market. “What you’re doing,” I explained, “is selling low and buying high. That’s a surefire formula for failure.” He understood the logic, but was wrapped up in the emotions of the market swings. He looked at the newspapers every day and, depending on the news report or op-ed pieces, he would make changes in his account.

Though the hows and whys of investing are a personal decision, the best way to decide whether you should own stocks is to confirm that you are a long-term investor with the tolerance level to handle the inevitable market swings. See how bear markets (down markets) sometime lead to new opportunities at the “education” tab of www.profile-financial.com.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Myth: Parents Must Pay for Their Children’s Weddings

Published May 17, 2009 Finance , Financial advice , Israel , Money management Leave a Comment

By Douglas Goldstein, CFP®

“If I don’t pay for two-thirds of an apartment, my daughter won’t get a good shidduch,” a client told me. Another client said, “We have to match whatever funds the other parents are contributing.” A different couple complained, “We’ll have to sell our house in order to raise the money to marry off our children.”

While I frequently hear complaints about the cost of marriage, I’ve never found the people on the other side of the coin. I haven’t been told, “If my son’s fiancé doesn’t fork up $100,000, I’m canceling the wedding.” Nor have I heard, “It’s true that my daughter has found a fabulous young man, but if his parents won’t pay enough, the deal’s off.” Therefore, it’s critical to understand the financial myths surrounding weddings.

I recently met a haredi Rabbi, the father of eight girls, who subsists on a rosh yeshiva’s salary. When marrying off one of his daughters, the other side asked how much money he would contribute. When he told them the modest sum he was capable of, they asked for more. The Rabbi told them, “When your son gets married, you can look for three things in his bride: a fine woman, a good family, and money. I hope you can be satisfied with two out of three.” A few years later, the two fathers met again, and the Rabbi was told, “With my next son, I looked harder for money, and it turned out to be a disaster.”

If you are reading this article, then you’re probably not part of a community where marriage is a business deal, consummated with the purchase of an apartment. As such, you need to determine how much you can and want to afford in helping your children. As your children begin dating, let them know what the wedding and marriage budget is so that there are no surprises. And please, please don’t perpetuate the myth that parents must bankrupt themselves in order to marry off their kids. If you have your own money/marriage stories, please email them to doug@profile-financial.com.

Which Are Better: Bonds or Bond Funds?

Published May 17, 2009 Finance , Financial advice , Money management Leave a Comment

By Douglas Goldstein, CFP®

If you want an investment that pays current income, diversifies your portfolio, and gives you a chance to take advantage of the recent drop in the market, consider buying bonds. As with any investment, bonds have certain risks; however, if they are appropriate for you, bonds and/or bond funds can add value to your portfolio in turbulent times.

One question people ask when looking to expand into the bond (“fixed income”) market is whether they should buy individual bonds or purchase a mutual fund that invests in bonds (a “bond fund”). Though not a complete list, here are some of the pros and cons to review with your financial adviser:

Return of principal
Individual bonds are designed to repay your principal at maturity (or when the bond is called). This means that on a specific date, presuming the issuer doesn’t default, you will get back a fixed amount of money. If you know you’ll have expenses, for example, you can time your purchase of bonds to mature in time for you to pay these future bills. On the other hand, bond funds don’t have a fixed end date when an issuer promises to pay you back your principal; so, while you may get regular dividend income as long as you hold the fund, your principal is at risk.

Income payments
Normally, bonds pay fixed interest payments semiannually (except zero-coupon bonds, which pay back money only at maturity). With bond funds, the (normally) monthly dividends may vary in amount, so you can’t be sure of how much you’ll receive every month. One benefit of receiving the monthly payments from bond funds is that you can have them automatically reinvested, allowing for compound interest to work for you. (Interest from regular bonds cannot be automatically re-deposited in the same bond. In this case, you would need to save them up over time and then purchase another bond.)

Default risk
Even though bonds are generally considered conservative investments, they sometimes default. If you own a bond that defaults, you could potentially lose your entire investment. Often, when bonds default, they do recover, but do not necessarily pay back all the money to the bond holders. Though bond funds may hold bonds that default, the risk of default is mitigated by the diversification inside the fund.

Who’s In Control – You or the Stock Market?

Published May 11, 2009 Finance , Financial advice , Israel , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP (R)

While the markets have a life of their own, that doesn’t mean every aspect of financial planning is out of your control. The two most important parts of investing – making a plan and sticking with it – are within your control.

News about the volatile dollar and the sinking stock market can be debilitating. Try to focus on what you have control over: asset allocation, scheduled savings and taking maximum advantage of tax-free saving programs. If you initially had a reason for investing in various funds/stocks, as long as the fundamentals haven’t strayed from your original reason, hold tight and wait for better times. Though past performance is no guarantee of future returns, those people who have held on have often done well with their investments.

Remember, your total return is mainly based on asset allocation, not individual investments. In other words, the kinds of investment you choose (what percent you put in stocks, bonds, and cash) may be a more important choice than the specific investments themselves (whether you chose stock A or stock B). In today’s global economy, there are many opportunities for diversification, and common wisdom holds that you shouldn’t put all your eggs in one basket.

If you’re saving a fixed sum of money on a regular basis, sometimes you’ll buy stocks high and sometimes low. This strategy of dollar-cost averaging (regularly buying regardless of the particular price) can help mitigate against severe market fluctuations.

Taking advantage of tax-free saving programs lets your hard-earned money work for the future. Letting your funds grow tax-free enables compound interest to work harder.

When the markets take a spin, your spirits don’t necessarily need to dive, too. If you are a long-term investor with a properly balanced portfolio, you should be able to weather surprises. And, if you don’t have the time to regain potential losses, consider rebalancing your portfolio to minimize your exposure to risk. As an investor, you should be the one in control of your portfolio, not the market.

How Bonds Can Improve Your Portfolio

Published May 3, 2009 Financial advice Leave a Comment

By Douglas Goldstein, CFP®

Would you like to own an investment that is stable, pays regular interest payments, and is designed to return principal on a predetermined date? If so, speak to your financial adviser about buying bonds. Though bond rates are lower than they have been in the past and entail certain risks, bonds may be able to play an important role in your account. Here’s why….

Do bonds return principal?

When you buy a bond, what you are really doing is loaning money to a company or government. A treasury bond, for example, is a loan that you make to the U.S. government. As long as Uncle Sam is still around, you should get your entire principal back at the maturity date … with interest, too. Keep in mind, though, that if you buy a bond from a less solid country or from a company, their guarantee might not be worth the paper it’s written on. If the bond’s underlying company/country defaults, you might not get your money back.

Lower volatility

Because bonds have some level of principal protection (presuming they don’t default), their prices tend not to be as volatile as stocks. Though changes in the prevailing interest rates and problems with the bond issuers can and do affect their prices, people often use bonds as a relatively stable anchor for their portfolios. For a more in-depth review of bonds, Building Wealth in Israel has a whole chapter dedicated to the topic.