Issue: #  36    DECEMBER 2011
Bautis Financial
Dear ,
 

Happy New Year and welcome to the December 2011 issue of The Wealth Chronicle.   I am calling this edition of the Chronicle the 2012 Who, What, When, and How issue.  It will cover: 

  • What to invest in for 2012
  • When to invest
  • Who to invest with
  • How to invest

 

Happy Holidays

 

2012: What to invest in

 

In December and January issues of the Personal Finance magazines (Money, Smart Money, Forbes, Kiplingers, etc) feature articles about what stocks, bonds, and sectors to invest in for 2012. Here are some of the common themes that they recommend.

 

Dividend Paying Stocks - Turned off by the paltry yields that treasuries offer, some people are turning to stocks to pick up the slacks for income generation. On a few occasions in recent months, the average dividend yield on the Standard & Poor's 500-stock index has exceeded the yield on the 10-year Treasury Bond; this is something that's happened very rarely in the past 60 years. The yields on some well-regarded firms are much, much higher than the yield on the treasuries.

 

Marc's thoughts - I've been on the Dividend Paying Stock bandwagon for a couple of years now, and I'm not jumping off in 2012. Here is an article I wrote about what to look for when selecting dividend payers. http://www.bautisfinancial.com/BautisFinancial_Dividends.pdf

 

Gold Miners - What's gold going to do? Is a question that almost every investor has to grapple with these days. Smart Money magazine advises investors not to focus on the metal itself, but on the firms that dig it out of the group. Traditionally, when the price of gold rises then gold mining stocks rise faster. A miner's costs are mostly fixed, so if the metal's price goes up nearly all of those extra dollars go right to a miner's bottom line. But over the past year, as gold's price has jumped 15 percent, gold mining stocks, as a group are down 1%

 

Marc's thoughts - The value of mining stocks in relation to the price of gold makes sense however one thing to take into account is that investors at the first sign of inflation or fear in the markets flock to the physical metal and not the stocks of gold miners. With volatility expected to continue into 2012 having some investment in actual gold and some in gold miners may not be a bad idea. The following illustration hits home the point that investors flocking to physical gold because that's where they feel safe, versus flocking to gold mining stocks, where more value may actually be acquired.

 

 

High Yield Bonds - Another value play for 2012 is investing in high yield bonds which have generally underperformed the safety of treasuries and corporate bonds all of 2011. Some professionals think that high yield bonds will outperform equities in 2012. A weak outlook in the US and Europe, coupled with slower growth in China, means that the global economy will likely "muddle through" the next 12 months, making high yield bonds a defensive investment class with equity like upside.

 

Marc's thoughts - While I do believe there is a place in most portfolio's for high yield bonds you have to tread lightly with this asset class as there is substantial risk in these types of investments.  If you are going to invest in high yield bonds, I recommend doing it through a fund like Symbol: JNK so that you spread the credit risk amongst many securities.  The second thing to consider is that in a worst case scenario, such as a double dip recession, high yield bonds will get clobbered.  I would not bet the farm on them even though their 10-12% yield is very appealing. 

 

These are just a few of the asset classes that are being recommended for 2012.  And if you read enough magazines and books you will find that every asset class is recommended by someone.  Every investment, including cash has risk, which is why I recommend doing a thorough analysis on the risk of your investments to ensure you are comfortable.

 

When to invest

When should an investor take his or her money out of the market and when to put it back in? This is one of the most frequently asked questions I am asked; how does one time the market. The following illustration shows what too many investors go through trying to time the market; it's from www.behaviorgap.com -

 

 

Most people make the same mistake over and over again when trying to time the market. They buy high out of greed and sell low out of fear, despite knowing on an intellectual level that it is a very bad idea. The easiest way to see this behavior in action is to watch money flow in and out of mutual funds.

 

Let's look back on 1999. By the fall of that year the dot-com market had reached a fevered pitch. People were using their home equity to buy tech stocks right after the NASDAQ had a single year return of better than 80 percent! Then, in January 2000, investors put close to $44 billion dollars into stock mutual funds, according to the Investment Company Institute, shattering the previous one-month record of $28.5 billion. We all know what happened after that. Money continued to pour into stock funds, breaking records for February and March and pushing the NASDAQ to 5,000, only to lose half its value by October 2002. Then it got worse; that same October (at the low for the cycle), as investors were selling stocks as fast as they could and buying bond funds at a time when bond prices were near record highs! Think about this pattern for a minute. At the top of the market we can't buy fast enough. About three years later at the bottom, we can't sell fast enough. And we repeat that over and over until we're broke. No wonder most people are unsatisfied with their investing experience.

 

A better approach would be to determine the mix of stock and bonds that you are comfortable with as an investor and keep investing along those lines. So if you decided that a portfolio of 60% stocks and 40% bonds is the right investment mix for your time horizon, then you should keep your investments in those allocations. Over time it will make sense to rebalance your portfolio which is a strategy described here. Rebalancing is a way to force you to buy low and sell high, which is the opposite of what usually happens when people try to time the market.

Who to invest with

 

It may be no surprise to you that when it comes to who to invest with I recommend myself.  There are over 300,000 financial advisors in this country and I believe the following sets me apart.

Independence - I work solely for my clients.  No kickbacks for pushing particular funds on my clients.  Because I am the owner of my welth management company, no one in my ear telling me to do something with my client's money.  I do what is in the best interest of my clients.

How I am compensated - I am a fee advisor, which means I collect a fee on the assets that I manage for clients.  Many financial advisors are compensated via commission.  They sell you a security that they collect a commission from.  Six months later they contact you and recommend selling the security they just bought and purchasing a different one, on which they also collect a commission.  This process repeats itself; as an investor, one has to wonder if his or her financial advisor's recommendations are in the best interest or just aiding in meeting the advisor's commission requirements and goals.

Knowledge - Not only have I been passionate about investing since college, but I have over 12 years experience in the financial services industry.  The amount of effort I put in with respect to education and training in unparalleled.  Take a minute to read over my Pledge to my Clients: http://www.bautisfinancial.com/BautisFinancial_Pledge.pdf

Wealth Manager - The most differentiating quality is that I am Wealth Manager rather than a Financial Advisor.  Upon first glance, the difference may seem small, however there is a significant distinction.  Finanical advisors typically only provide investment advice.  However wealth management focuses on goals that require planning, money, time, and the ongoing coordination of the client's financial ecosystem.  As a wealth manager I help my clients create a realistic financial vision and a roadmap to help them achieve their vision.    

How to invest

 

1. Diversification works - From year to year there is no way to tell which asset class will be the best performer. Spreading out your investments across multiple asset classes will not only smooth out your returns it will give you a peace of mind of minimizing the volatility that has increased exponentially over the past couple of years. If you want proof of how diversification works please take a look at the following link that shows the returns of different asset classes over the past 10 years: http://www.bautisfinancial.com/The_Importance_Of_Diversification_2011.pdf 

2. Expenses Matter - Expenses on mutual funds will range from 2% to .1%. That is a huge spread and can have a huge impact to your returns so these cannot be ignored. The amazing thing is that you can find two funds that are almost identical however one has an annual expense ratio of 1.5%, the other one has an expense ratio as .25%. Yes, there are high expense mutual funds that perform well, however studies have shown that you are better off owning the lower cost funds. Yet people still contest that costs are not important although every dollar that you pay toward your investment company's overhead is a dollar that disappears from your net returns.

 

3. Indexing - A corollary to the Expenses Matter principal, indexing is the strategy of passive investing through Index Funds. This strategy will almost always beat Active Investing because of the following:

  • Minimal advisory and management fees
  • Low Portfolio turnover
  • Broad diversification
  • High tax-efficiency potential

4. Spend Less Than You Earn - OK, this is not really an investing principal, it's really a way of life. If you want to latch on to one financial motto, there is no better one than this.

 

5. Proper Tax Planning - Taking into account tax planning when managing your investments can result in substantial tax savings now and into the future.

 

 The Watercooler

 

I would like to send congratulations to two former colleagues of mine Rex Rossbach and Laurence Graham.

 

No matter which way your politics lean you can't be happy with the stalemate that goes on in Congress whenever something needs to be decided that impacts our future. And to make matters worse, more often than the stalemates they just let laws and bills expire without taking putting in the effort to decide whether or not any course of action should be taken. I was sent this interesting poll and article from MoneyMorning, a financial blog on whether Taxpayer funded perks to Congress should be eliminated. Check out the article: http://wallstreetexaminer.com/2011/07/27/if-you-or-anyone-you-know-is-looking-for-a-job%E2%80%A6/  And take a look at the poll here: http://liveliketherestofus.com/ 

 

Kids and Investing - The following is a great article about kids who started their investment habits often. The most important component of successful investing is not the return you are getting, or what security you are investing in. It is about how early you start investing. http://finance.yahoo.com/news/super-young-retirement-savers.html?page=1.  We can talk about What to invest in and when to invest but by far the biggest way to suceed with investing is to start doing it early.

 

The recent Tiger Woods and Kobe Bryant divorce filings show how different the divorce settlement could be depending on in which state you are married. In the case of Tiger Woods, his wife Elin is entitled to 20-25% of his assets. They were married in Florida which is not a community property state. On the opposite end of the spectrum is Victoria Bryant; she will most likely have claim to 50% of Kobe Bryant's assets. They were married in California which is a community property state and defines the husband and wife each have a claim to any property that was acquired during the marriage. So this begs to question, Kobe, where was your prenup? Take a look at how much it will cost him: http://thetrustadvisor.com/news/kobe

 

Please contact me if you have any questions about the articles above or about your personal or business finances.

  

Sincerely,

Marc Bautis
Wealth Manager

 

office: 201-842-7655
cell: 201-221-6895
fax:  201-754-9760
Disclaimer:The information contained in this newsletter is for information purposes only and may not be suitable for your specific financial situation.  You should consult a financial advisor before making any investment decisions relating to the information contained in this newsletter

What's Inside?
What to invest in
When to invest
Who to invest with
How to invest
The Watercooler
Marc Headshow w Skyline, 9-2011
MEET MARC  

Marc Bautis is a Wealth Manager specializing in working with young families as well as retirees and those nearing retirement. He understands that everyone wants to not only protect their principal, but also be sure that their money lasts.  He is committed and proud to deliver independent advice, always in the interest of his clients.

Marc is the creator of the Retirement Fitness Challenge™,  a program designed to be sure his clients enjoy the retirement years as they have always envisioned them.  Marc's program is designed to prevent outliving your money but also to minimize expenses during retirement and find the best time to start taking Social Security benefits.   

Marc is a graduate of Seton Hall University.  He is a Bergen County native, from Lyndhurst, where much of his extended family still resides. He currently lives in Hasbrouck Heights with his wife Katie and Old English Bulldog, Winnie.

 

Quick Links
BF_Website
 
Newsletter Archive
 
 blog

Facebook

Twitter

Business Network