|
Join Our List
|
|
Have a friend who may find this interesting?
|
|
|
|
| Greetings!
We thought you might find this news item interesting and timely.
|
Blue Haven Capital interviewed by WSJ.COM
Cash Is Looking Better As Investment
(click here for original article)
As the market pushes investors beyond their
comfort zones, cash and cash-equivalent investments -- traditionally
stodgy options for advisors -- are gaining appeal.
By SUZANNE BARLYN
Cash
and cash-equivalent investments - traditionally stodgy options for
advisors - are gaining appeal as extreme market volatility pushes many
clients beyond their comfort zones.
Advisors typically suggest that clients limit cash exposure to
between 5% and 10% of their portfolios, or maintain a reserve that is
equivalent to between 18 and 24 months of living expenses, in the event
of a bear market. But some advisors are increasing their clients' cash
holdings and exposure to other "cashlike" short-term investments,
particularly to U.S. Treasurys, a safe haven in a brutal market.
"Cash is looking better for a few different reasons," says Donald B.
Cummings Jr., an investment advisor with Blue Haven Capital in Geneva,
Ill. Cummings says he was concerned that some municipal money-market
funds would potentially "break the buck" - or fall below $1 per share.
He preemptively moved client funds into plain-vanilla U.S. Treasury
money-market funds. Cummings recognizes that Treasury yields are low.
For example, the current seven-day yield for the Dreyfus 100% U.S.
Treasury Money Market Fund (DUSXX) is 0.51%. However, the strategy is
more tolerable for the short term, he says.
"People expect volatility, but no one wants to lose three and four
percent on their money-market funds," says Cummings. He's not entirely
sold on the Treasury Department's temporary guarantee program for
money-market funds, he says, which protects certain shareholders of
money-market mutual funds from losses if their funds are unable to
maintain a $1 net asset value. The program offers protection for
money-market holdings valued as of Sept. 19. Cummings says he's
concerned about jeopardizing funds deposited after that time. "We're
telling everyone to hold tight for a few months and see how this plays
out," he says.
Advisors are also being judicious about investing new cash from
clients since the bear market onset in October 2007. Cathy Curtis, a
financial planner based on Oakland, Calif., says she's been
particularly cautious with several new clients she took on last
October, when the market started its decline, whose accounts average
about $500,000. Curtis says she invested about 50% of their money at
the time and left the rest in cash, including the Schwab Value
Advantage Money Fund (SWBXX). "I have been investing it slowly - even
over the last month," she says - about $2,500 at a time.
Cummings is stretching cash that he'd normally invest within about a
month across a four- to five-month span. He stashes funds that he plans
to invest at a later time in pre-refunded municipal bonds - a
high-quality municipal bond in which the income and principal is
typically insured by an irrevocable trust of U.S. securities. Cummings
says that tax-free yields are between 1.5% to 2.5% - significantly
better than U.S. Treasurys. A three-month T-bill, for example,
currently yields 0.75%. "There are places to hide on the short end of
the curve that make a lot of financial sense," he says.
Some advisors are also considering their clients' sense of
well-being. "It's important that people feel safe and that they're
going to have some liquidity," says Pran Tiku, a wealth manager for
Peak Financial Management Inc. in Waltham, Mass. He's raising cash by
selling off lower-quality, higher-yielding bonds, which are typically
viewed unfavorably by bond-rating agencies. "If the credit crunch is as
ominous as it seems and does not have a resolution, then cash becomes a
very important investment to hold," he says.
Tiku has been investing the cash in short-term bonds, such as
short-term Treasurys and government instruments, as well as
money-market funds. A 5% minimum of clients' balanced portfolios is
typically held in cash and cashlike investments. But Tiku has increased
the allocation to about 30%. He's decreased bond allocations to 7% from
about 30%.
For Doug DeGroote, managing director of United Wealth Management in
Westlake Village, Calif., increasing his cash allocation serves another
purpose. "We're sitting in a more liquid stance and looking for
[buying] opportunities. It's being prepared for a chance to move money
back into the market," he says.
DeGroote says he converted low-yielding short-term bonds to cash in
preparation to snag good deals. DeGroote's firm typically allocates
between 5% and 10% of client portfolios in cash, However, the figure is
presently closer to 20%, he says.
Not all advisors are completely sold, however. Mark Colgan,
president of Colgan Capital in Pittsford, N.Y., says he modifies his
plan only after a client calls on three occasions and expresses extreme
anxiety - indicating a client's lack of risk tolerance. If the client
is a retiree, Colgan will then build a small cash position of between
12 and 24 months' worth of withdrawals to ride out the bear market. But
he urges younger clients to stay the course. "For me, it is more about
aligning the client with the proper portfolio - not reacting to the
markets," he says.
Laura Mattia, an advisor with Baron Financial Group in Fair Lawn,
N.J., says the firm adopts an "all-weather strategy" with clients early
on and doesn't waver. Mattia and her colleagues typically limit cash
exposure to 18 months of a client's personal expenses. "All of these
assets will come back. They are going to rebound," she says. "The day
when the stock market goes up 800 points is when people are going to be
sitting there in cash saying I should have, would have could have."
Write to Suzanne Barlyn at suzanne.barlyn@wsj.com
|
|
Blue Haven Capital is
a fee-only registered investment advisor providing experienced,
professional low cost investment management for individuals, private
foundations, and public charities. If you know an individual or group
who might be interested in our services, please forward this email to
them!
Best Regards,
Donald Cummings Bill Moucka
Principal Principal
Blue Haven Capital LLC
630.588.3800
|
|
|
|
