• Home
  • About Us
  • Toolkit
  • Getting Finances Done
    • Hiring Advisors
    • Debt Management
    • Spending Plan
  • Insurance
    • Life Insurance
    • Health Insurance
    • Disability Insurance
    • Homeowners/Renters Insurance
  • Contact Us
  • Privacy Policy
  • Risk Tolerance Quiz

The Free Financial Advisor

You are here: Home / Archives for Investment management

Investment Risks in the World Today

March 16, 2022 by Jacob Sensiba Leave a Comment

investment-risks

The world is crazy right now. The war with Russia and Ukraine has created investment risks and opportunities with commodities, specifically. Inflation is also an issue. What do you do with all of these moving parts in the global economy?

Gold

Gold has only gone up since the war began, up over $2,000 for the first time since 2020. The reason being is that gold is a store of value and is often seen as a safe asset during times of uncertainty, like war, inflation, or a pandemic.

Gold isn’t the only asset that’s used in times of uncertainty. Cash, bonds, and other precious metals have also seen a massive inflow lately.

Crypto

Cryptocurrencies have also seen a run-up in recent weeks, for two reasons. One, some people do see cryptocurrencies as a store of value like gold. And two, cryptocurrencies have played a role in this war. Because Russia has been cut off, financially, from the rest of the world, they’ve used crypto to finance operations. Ukraine has done the same, but for the reason of being able to raise money from different channels.

Oil

The price of oil has been on a roller coaster since the war began. Russia supplies a lot of energy to the world. It supplies the U.S. with just 3% of oil, but it supplies Europe with most of what they use. That said, the price of oil went up very fast to about $125/barrel because the US and other countries blocked them off to further disrupt their finances.

It’s come back down since then thanks to OPEC+. They pledged to increase production to make up for the loss in supply.

Inflation

Inflation is off the charts right now. The most recent reading came in at 7.9%. There are quite a few things that are seeing the effects of it. Food is getting more expensive. Gas, obviously, due to supply constraints and inflation is getting more expensive. Property is also getting more expensive. Interest rates are going up as well. My wife and I refinanced late last year and locked our rate in at 3%. The most recent reading came in at 4.5%.

The FED is going to make some moves as well. Because of the war with Russia and Ukraine, they will take a more measured and conservative approach, so it’s possible that inflation is a problem for longer because the FED won’t hike rates as quickly as they may have previously intended.

Commodities

There are some other commodities, besides gold and other precious metals, that are feeling a pinch due to the war between Russia and Ukraine. Wheat is the biggest example of this because between Russia and Ukraine, they produce and ship a third of the world’s wheat.

Unintended consequences

Even though the war is between two countries, it’s affecting everything (though differently than how it’s affecting Russia and Ukraine). There are logistical problems that are delaying shipments of things. The air space above the scuffle is off-limits, so flights around the area are taking longer than they previously would have. Longer flights = more fuel and reduced volume on flights = increased costs.

There are a lot of investment risks and opportunities due to the moving parts in the world right now and the market will continue to be volatile until things settle down. If you have time to ride out some ugly markets, stick to your plan. If you’re in retirement or close to retirement, reducing your risk might not be a bad idea.

Related reading:

How to Invest in Gold: 5 Ways to Get Started

How Inflation is Changing Our Lives and Not for the Better

Weekly Wrap: Crypto Aids Ukraine Putin Aids Inflation and Russian Investments Tank

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba
Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

 

www.crgfinancialservices.com/

Filed Under: International News, Investing, investing news, money management, Personal Finance, risk management Tagged With: ', choosing investments, commodities, conservative investments, crypto, defensive investing, federal reserve, gold, Inflation, invest, investing, investing news, Investment, Investment management, Risk management, wheat

How I Chose My High Yield Bond Fund

May 1, 2012 by Average Joe 16 Comments

Last week I described the ultra-thrilling process of how high yield bond funds work. The reason I penned that particular post was simple. I was in the process of buying one.

In today’s entry, lets look “over my shoulder” to see the method I used to pick my new fund. Many people don’t get to see how someone with 16 years of professional experience chooses an investment in their portfolio. Choosing a high yield mutual fund is a little like exploring through a wasteland of worthless investments (as you’ll soon see), and I think there’s a few crucial basics beginners can learn from my adventure.

Why? Like reading a map, you’re going to be surprised by how straightforward and simple the process is. Buying funds isn’t complicated and you too can find a good mutual fund within minutes while feeling comfortable that you performed adequate due diligence.

The key part of the process is spending some good time with the map first. If you know what you’re looking for, exploring for the fund is the easy part.

Leading up to choosing a fund, I determined the following:

  1. I knew my end goal. I wasn’t just throwing money in the general direction of my problems or praying for high returns. I didn’t use a “more is better” approach. That usually lands investors in an ugly spot, when their greed turns profits to huge losses. I was looking for retirement, and needed to maintain at least a 6 percent return to get there.
  2. I had already determined my asset mix to reach my goal. On our podcast and in previous posts, I’ve discussed finding the appropriate diversified asset mix for your goals. Mine included high yield bonds, mostly because they have a history of achieving my target return.
  3. I knew how much money I needed in high yield bonds to meet my goal. Normally, I’m not a fan of mutual funds. But, because it was a small amount and a manager can oversee the process of avoiding defaults, I decided one mutual fund would do the trick. For more sizable chunks, I’d hire multiple managers or switch from a mutual fund to individual bonds.

Why is it important to determine these three criteria first?

Like deciding which size ice cream cone you’re getting, it’s best to look at your current situation, or waistline, first. Plus, there’s another, overreaching reason:

I’m lazy.

Could you imagine the horror of searching through a gazillion mutual funds in a trillion different asset classes to find the one that fit my needs? Why would I spend countless hours oogling different investments I’ll never buy. I want to narrow the search as much as possible before investing. Why waste all that time I could be watching Cake Boss or Millionaire Matchmaker sorting through countless asset classes that I’ll never use?

I’m not going to waste time searching for investments. I’ll figure out the map first and then choose the right vehicle to get me to my goal.

…and that, class, is how we reached this point: choosing the vehicle.

Let’s begin.

My search began at TD Ameritrade. That’s because the IRA holding the cash I was going to use is housed there. If you’re not familiar with IRA custodians, you have a choice between many different places. Some decide on a bank, others a financial brokerage firm. I chose TD Ameritrade because I’m comfortable choosing investments alone but appreciate their stock and bond tools. They aren’t the cheapest provider, but I’m comfortable with the fee structure.

Fees

 

Just like a trip to the grocery store, every asset search begins with a discussion of “how much is this going to cost.” In many cases, I don’t want a mutual fund at all because they’re expensive, but in the high yield asset class, I want one. I don’t want to guess if one of the companies I own is going to go bankrupt. I also don’t want to do the homework necessary to avoid picking a loser (remember the lazy part above?).

Some mutual funds manage your cash for a reasonable fee, while others might as well be carrying a gun and wearing a mask.

But they’re not the only robbers.

It turns out that TD Ameritrade also is in on the “let’s gouge our customer” game. They’ve forged deals with some fund companies to offer their mutual funds at a lower cost. To tell you just how much lower, I was originally eyeing a Pioneer high yield offering. Imagine my surprise when I found out that I’d have to pay $49 when I bought AND AGAIN when I sold. Ouch.

As an aside, why not just round this ridiculous fee to $50? Wouldn’t anyone dumb enough to pay $49 shrug at a dollar more? If they want to play the psychological game make it $49.99. They’re leaving $10 on the table. I should work for TD Ameritrade…..

 

Screening: Expenses

 

So, armed with the list of funds that are available on my platform, I visit TD Ameritrade’s mutual fund screener site. There are many of these all over the web. The Wall Street Journal has a good one, as do Morningstar, Yahoo and MSN.

I used TD Ameritrade’s own screener for one reason. The first screen for me should be called “funds that avoid the ridiculous fee.” Because that’s too obvious, they named it, “No trading cost fund list.”

Screening: Manager

 

The second screen is for manager. If I have a manager at all, I want one who’s a little seasoned, but different than most investors, I also don’t want one who’s crusty. A fund manager nearing retirement might be milking her reputation at this point. Well-known managers such as Bill Gross at PIMCO are going to survive a couple down years with their portfolio if they decide to take a mental vacation at this point in the game. I don’t want that person.

I want them hungry.

There is no “avoid managers who have been around too long” screen, so I’m stuck using one based on minimum tenure. I don’t want one with less than three years in the saddle, personally, so I choose that screen.

Screening: Star Rating

Like I said, I’m lazy. I want Morningstar to do most of the heavy lifting for me. Although I’m smart enough to know that many lower-ranked funds could do well next year, I don’t have the time to search through them all.

In other areas, where I’m looking for more than a consistent dividend check and a fairly stable value, I might screen for more complex areas. In high yield, that’s it.

I press the “search” button.

Examining the List.

Now I feel like a kid in a candy store. Laid out in front of me is a shortened list of candidates for the title of “good enough to examine up-close.”

My attention now turns to fund evaluation company Morningstar, where I’m going to dig into each fund in detail.

I’m particularly interested in:

  • how each fund performed against it’s competitors,
  • what the dividend looks like, and
  • how the fund is managed.

I dig into these areas quickly. Simple internet searches lead me to mines of information. I’m too lazy to waste time flipping through funds, but when I’ve found my potential targets, I dig in like a rib-lover at the barbeque cook-off.

What Did I Choose?

Ultimately, the USAA High Income Fund won the day.

Why?

For an average fee of .90%, the dividend to me approaches 7% (6.93% as of this writing). The fund manager, R. Matthew Freund, has 21 years of experience (with USAA since 1994), so is mature yet not quite at retirement age. There’s been a co-manager named Julianne Bass since 2007, so there is younger blood overseeing day-to-day operations as well.

The fund has beaten the high yield sector over the past five years, but not by a ton. For the most part this fund’s performance has been slightly above or below the index. When it’s missed, it missed well above its asset category. It hasn’t had a major hiccup.

At this point, I like to guess what I’d rank the fund. I’d give it four stars out of five. It’s a winner, but not a thoroughbred. It won’t be the “hot thing” anytime soon. Perfect for this job.

Morningstar agrees, rating the fund four stars out of five. It’s an above average competitor with average fees and solid management.

Perfect. Often five star funds attract scads of assets, forcing me to look elsewhere as the management can’t invest all of the cash it’s attracted. I’m less concerned with the management of the fund over the past five years as I am over the next five. Because this fund isn’t meant to be the “go baby go” part of my portfolio, I’m fine with boring. In fact, I expect it and hope for it. Let’s get my 7% return so I can focus my energy elsewhere.

That’s how I picked the fund.

Complex? Nope.

I’d be willing to bet that this little 1000 word example is more homework than 95 percent of people complete when choosing investments. Even if a professional picks funds for you, there should be a list of screens you use to oversee picks.

It’s your portfolio. Take charge. It isn’t difficult.

(photo credit: Statue, Eusebius, Flickr;

Enhanced by Zemanta

Filed Under: investment types, investment websites, low cost investing, money management, Planning, successful investing Tagged With: High-yield debt, Investment management, Morningstar, Mutual fund, PIMCO, TD Ameritrade, USAA, Wall Street Journal

What Did 2011 Teach You About Money?

December 28, 2011 by Average Joe 7 Comments

What’s one of my favorite activities this last week before the New Year? Once I’ve finished watching the Swamp People marathon, I like to turn the mirror on the preceding twelve months and determine what lessons I should remember to avoid future pitfalls. We won’t count lessons like “always check your fly before you walk into the bank” or “some people don’t appreciate grocery store coupons as stocking-stuffers.” Those are lessons we should have learned long ago, but refused.

No, there are bigger lessons that we should have learned in 2011. Not all of them had to do with money.

Here are five of my favorites:

Protect Your Downside

When I was a financial advisor, I was appalled by the sheer number of people who wanted to avoid insurances. 2011 taught us that bad things happen when we least expect it. Whether it’s the awful house fire in Connecticut this weekend, massive tornadoes in Alabama and Missouri, or the nuclear meltdown in Fukushima, Japan, we were reminded in the media that bad things happen suddenly. Because we don’t know when or where disaster is going to strike, it’s a good idea to put your financial house in order while times are good.

Related Ideas for Next Year:

– Build an Emergency Reserve

– Review Insurances

– Finish the Estate Plan

Know Your Money Managers

If you didn’t believe it when Bernie Madoff ran off with carts of other people’s money, the situation at a money management firm called MF Global should be another wake up call. After over $1.2 Billion (with a B) dollars went missing, the head of the firm professed to Congress that he has no idea what happened to the money. While I’ll admit that it’s impossible to know how a manager is keeping your assets safe, handing all of your money to one person is asking for disaster.

This doesn’t mean you should keep all of your funds in an FDIC insured savings account, but it does mean that you should perform due diligence.

2011 Here are some good questions you should be asking yourself:

How many different funds is my money spread among?

If all of your money is under the umbrella of one mutual fund, one asset manager, or one trader, you’re asking for trouble. This isn’t the same as having a single advisor. Good advisors will recommend you spread your money among many different managers, partly to ensure your safety.

How are your dollars protected against someone running off with your money?

Insurances such as SPIC cover investors, but you should know how it works.

What is the objective of each manager?

This question won’t help your funds from being stolen, but it can help you identify whether your advisor is actually recommending investments with your end goals in mind. If a fund is too aggressive, you may lose

How long have the managers of my funds been around?

Asking these questions won’t guarantee that your money won’t get stolen. Nothing can stand against a crafty criminal who’s working hard to steal your money. But you don’t have to make it easy for him. And, with a little planning, you can minimize your losses.

Related Ideas for Next Year:

– Meet with Your Advisors and Ask Questions

– Go to the FINRA BrokerCheck website to review your advisor’s record

– Diversify Your Financial Managers

Don’t Wait on Legislation to Make Decisions

Wow. Was there ever a more politically contentious year? Although there have always been (and will always be) fights between political parties, Washington has divided into two well-armed camps and compromise is a dirty word. It seems that the only legislation being passed are stop-gap measures to keep the government open. For the most part, these same issues will be voted on again in a matter of months.

When I have discussions with people about financial planning, I’ll frequently hear that someone is “waiting to see who wins the next election/whether the bill passes/how taxes are going to shake out/what the market is going to do.”

These are excuses.

There will always be new legislation, new market conditions, new headlines. An effective financial planner doesn’t wait to see what’ll happen. He adjusts to change.

Related Ideas for Next Year:

– Review Your Financial Plan

– Put a New Savings Plan in Place

Your Diploma Won’t Buy You a Job

Whether you agree with the Occupy movement or not, we’ve learned that there are many, many people out there who paid money they didn’t have for a degree, only to find out that there wasn’t a market for their services. Historically, people follow their dream through college and then beginning thinking about which career to enter. Sadly, it’s been proven to us now that before seeking a degree, we have to consider a cost-benefit analysis before deciding on a degree.

This doesn’t mean that you shouldn’t follow your dream. Certainly, you stand a better chance of being successful in your chosen profession if you love what you do. Following the theory that we only have one life to live, you owe it to yourself to establish yourself in a fulfilling career. But you should do some research about the career and how you plan to enter the market before you take on lots of debt.

An example: If you were to open a Mexican restaurant in a town full of other Mexican restaurants, you’re bound to fail to the leading establishments unless you can quickly identify how you’re different and how the competition is vulnerable. Armed with this knowledge, instead of taking out a loan to build another “me too” restaurant, an entrepreneur may decide that a Tex-Mex offering with live entertainment and only waiters fluent in Spanish is a better idea. You may change the hours or the decorations to stress your strengths. Will these moves guarantee success? Nope. But it’s a far better plan than taking out a loan and hoping to succeed, which is what many college applicants now do.

Related Ideas for Next Year:

– Review cost/benefit when taking on debt

– Build written plans to evaluate major financial decisions

Your Banker Might Not Be Your Buddy

Ah, my favorite topic: Bank of America. Like Darth Vader on steroids, BofA decided (without any thought about their reputation) that a five dollar debit card fee was a good idea. This time, protests by consumers and bloggers helped block the move. But the message is still clear: banks are searching for creative ways to replace income lost in failed mortgages and new credit card oversight rules.

Historically, bigger banks have been able to help you in ways that smaller firms couldn’t. Before I woke up, I used Bank of America for one reason: they had a larger network of ATMs than other banks. Then I discovered a little bank that would pay other bank’s ATM fees (I’d give you the name, but they no longer do this for new customers). Online banks are becoming highly competitive. As we move into the mobile banking age, the need for a ready ATM machine is dwindling. It’s time to review your bank and decide if it’s still competitive.

Related Ideas for Next Year:

– Review Your Bank Fees

– Explore Other Banks to Determine If There’s a Better Fit

There you have it. These were the five big lessons I learned in 2011. I’m sure there were many, many more.

Now it’s your turn: What were your biggest financial lessons from 2011?

Enhanced by Zemanta

Filed Under: Meandering, Planning, successful investing Tagged With: 2011 financial year in review, 2011 money lessons, Bank of America, Bernard Madoff, Bernie Madoff, Financial plan, Investment management, MF Global

FOLLOW US

Search this site:


Recent Posts

  • How long should you keep financial records after a death? by Jacob Sensiba
  • Can My Savings Account Affect My Financial Aid? by Tamila McDonald
  • What Advantages and Disadvantages Are There To… by Jacob Sensiba
  • How to Recover Pay Stubs From Your Old Job? by Susan Paige
  • How to Avoid NJ Exit Tax by Jacob Sensiba
  • When Are Manufactured Homes a Good Investment? by Tamila McDonald
  • Appreciating vs. Depreciating Assets by Jacob Sensiba

Copyright © 2022 · News Pro Theme on Genesis Framework