The Intelligent Decision
August 2009

American Financial & Tax Strategies, Inc.

Meet Angela Lao

 Angela Lao
I think most of you have spoken to Angie at one time or another over the years, many of you have met her, and, I dare say, a few might have fallen in love with her. Now that I think about it, EVERYBODY loves Angie - her cheerful manner, friendly voice and her ability to "get it done", no matter what it is you need.
She has been with us since the beginning and there isn't an aspect of American Financial with which she is not familiar. Her primary roles are data management, technology and facilities control, but she is truly a Jack-of-all-trades (Jane-of-all-trades?) and master of ALL. After over a decade, she still amazes me when a new challenge appears and she says quietly, "Oh yeah, I can do that!"
Angie was born in The Philippines and has traveled the world but is now a real New York City woman. If you want to know where the best bargains in Chinatown are or the fastest way to get from here to there, she's the one to ask. But if you really want to have some fun, ask her how many cousins she has!
Seriously, we just would not be the organization we are today without her.
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The next issue will feature a review of the tumultuous year in finance.

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Portfolio Rebalancing

We all tend to talk about "the market" going up or "the market" going down, but which market are we talking about? Stocks or bonds? Domestic or foreign? Large companies or small? What about commodities and real estate?
There certainly is some correlation between these, but it can vary dramatically. When hit with the same economic, political and social forces, different types of assets will react differently.
This is a troubling challenge for traders but a great opportunity for investors. It is considered a smart practice to lay out a disciplined investment policy for yourself, deciding in advance what percentage of your assets you wish to allocate to each asset class. That will depend, of course, on your individual tolerance for risk and other factors.
Then, as these different classes move over time, each in their own way, periodically REBALANCE them back to the original allocation, either with new money or adjustments in existing assets. In this way, you tend to avoid trends and manias and have a greater chance of having a lower concentration in asset classes that may correct downward and slightly more money in those areas that may have temporarily been out of favor.
We have seen an almost perfect example of how great an opportunity this can be lately. Over time, Large Cap Growth stocks and Large Cap Value stocks have tended to achieve the same returns. In the short run, however, it can be very different. In mid summer, the year-to-date returns differed by over fifteen percentage points. Huge! If you believe that long term averages will hold (look for a future article on "regression to the mean"), then clearly new investments should be directed in one direction over the other and balancing adjustments should be made.
Take a look at your total investment picture. This may be a very intelligent time to rebalance. Of course, if we have the privilege and responsibility of advising you on your money, you don't have to give it a second thought. We do it for you and we do it with as many as fourteen or fifteen different asset classes. That way, you can just sit back, enjoy the final weeks of summer and look forward to a beautiful autumn. 
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