Just as in nature, there are seasons in
the world of investing. Recently, the investing climate has changed considerably.
Recognizing those changes and adjusting how your money is invested can dramatically
improve how much you will earn in 2004. Read on to find out what I recommend to my Private
Wealth Management clients.
(PRWEB) February, 2004--First, lets
examine the changes in the interest rate environment. Interest rates have been steadily
declining since the early 1980s. A client recently told me how he bought a home with
an interest rate of almost 18%--and was glad to get it! Now, homebuyers are borrowing
money at less than 6%. When I started in the industry back in 1987, I remember offering
30-year government agency bonds paying 12%. Now a 30-year Treasury bond yields 5%.
The long-term decline in interest rates
over the last 20 years has resulted in rates that are at 40 year lows. The next trend is
going to be for interest rates to rise. I dont expect them to jump up overnight, but
to rise slowly over the next several years.
As interest rates decline, the value of
an investment in bonds increases. Those investing in bonds and bond mutual funds over the
last 20 years have been handsomely rewarded. But the opposite will occur over the next 10
years. Those who continue to invest in bonds and bond mutual funds are going to find their
return significantly lower than what they are used to.
Once considered a safe and stable
investment, bond investors will be at increased risk of falling behind. It is likely that
those investing in bonds could have an annual return of 3-4% or less. You should reduce
the percentage of your portfolio that is currently allocated to bonds. I am currently
recommending only 20% of my conservative clients portfolios be allocated to bonds.
I am recommending that my clients turn to
real estate based investments for that portion of their portfolio designed to provide
stability and income. Real estate does not react to changes in interest rates the same way
that bonds do. In particular, I am recommending that my clients allocate 20% of their
portfolios to a combination of public and private Real Estate Investment Trusts (REITs).
These should provide an income stream of 6%-8% per year plus some additional capital
It is important that caution be exercised
when investing in REITs. There are many different areas of the real estate market in which
you can invest including retail shopping centers, malls, office buildings, warehouses,
condos or apartments. Each comes with its own set of risks, but properly managed REITs
should be an important part of any portfolio.
Now, lets take a closer look at
changes in the stock market. Stock investors have just been through 3 terrible years of
losses from 2000 through 2002. This has caused many investors to flee stocks for the
relative safety of bonds. But the economy has now turned the corner; businesses are
recovering, and the markets should continue to do well over the next few years. I am
recommending that my clients increase the percentage of their portfolios allocated to the
stock market in 2004 to 50%.
Investing in the stock market can be
volatile, so it is vital that you take steps to protect yourself. My firm has developed a
portfolio management and protection system so revolutionary that we are patenting several
aspects of it. I will share more about it in a future article, but those investing in the
stock market need to learn from the past. The times of buying a stock or mutual fund,
throwing it in the drawer and forgetting about it are over.
I recommend my clients keep the remaining
10% of their portfolios available as an emergency reserve and as money that will be
available to take advantage of unique opportunities as they arise.
Remember, the individual investments you
choose are vital to your overall success. Unless you have a trusted advisor actively
watching your portfolio, dont just throw it in the drawer and forget about it.
Additional articles on investing,
including the hot products you should avoid like the plague, are available at www.guardingyourwealth.com
Mr. Voudrie is a Certified Financial
Planner, a nationally syndicated columnist and the President of Legacy Planning Group,
Inc., a Private Wealth Management firm in Johnson City, TN.