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5 Steps Toward Sound Investing

George Feiger — Wed, 03 Aug 2011 01:00:09 +0000

Making sound investments is simple, but it’s not easy. It requires planning, discipline, realistic expectations, flexibility and understanding.

By adhering to the five basic principles that follow, you can greatly improve your long-term prospects for investing success.

1. Develop a real plan

You must work back from your purpose in investing. For example, if you are investing for retirement, you should have a good idea of:

- When you will retire
- The type of life you will be comfortable leading
- How much you are likely to spend in retirement
- What your current assets are
- What you can expect to save between now and retirement
- Whether that amount will be enough to meet your requirements
- What you might reasonably anticipate earning on your assets
- Your options if something goes wrong: For example, could you return to work?

Developing answers to such questions – even though those answers may change over time – can shed significant light on how much you will need to invest, how you may want to invest it and what other steps you should consider taking.

2. Anticipate the worst, not the best

Don’t live in a dream. Your house could fall in value not rise. Stock returns might have gained value over the last 20 years, but may not rise in the next 20. Anticipate returns on the bad side of average and work with those. No one ever complained about ending up with more money than expected.

Maintaining an emergency fund can also help make sure that you’re able to meet unanticipated financial needs – and prevent you from being forced to sell assets you’d be better off holding.

Finally, calculating conservatively will induce you to save more, expect less and not to bet big on the latest hot idea. This is never a bad thing.

3. Figure out what price to pay

The market price for an investment isn’t always the “right price.” Our world works in fits of enthusiasm and waves of revulsion. Think of the Internet bubble, think of the notion that real estate would always go up or that emerging market stocks should be bought “because” China was growing faster than the US.

Then think what happens if you overpay for an investment by, say, 25%. You will have to earn that much in “real” value merely to end up even. If your investment timeframe is a couple of decades or more, paying the right price is not so critical. But most people earn and save more in their 40s and beyond than they do in their younger years. They may not have multiple decades to make up for mistakes.

4. Keep learning and evolving as the world changes

Over the years, both opportunities and risks can shift dramatically. Keep an eye out for such shifts – and for their implications.

For example, as we already know, not all government entities turn out to be sound investments. We also have a pretty good indication that, in the future, emerging markets will account for much of the world’s growth. Global warming could mean that farmland in Oklahoma goes from being a “good” investment to a “bad” one. Perhaps inflation will be much higher than it has been over the last 20 years.

Keeping your plan on track is an ongoing job. You can’t just make some decisions, however good, at the beginning and then put your portfolio on autopilot. Investing requires ongoing inquiry into economic and financial market developments – it is real work.

5. But be keenly aware of what you don’t know

You must learn and change, but you also must do so deliberately and thoughtfully. We are bombarded by media “experts” telling us that now is the time to do something drastic and buy all sorts of exotic investments that promise all upside and no risk. Let’s get real: Why should anyone share a true bonanza with you? If it’s so great, why do they need your money?

Most investors are much less well-informed about the real value of opportunities and risks than are the institutions with which they invest. There are no sure things. Even the cleverest people make mistakes. Expect only modest returns and avoid extravagant promises.

George Feiger is chief executive officer of Contango Capital Advisors, the wealth management arm of Zions Bancorporation (www.contangoadvisors.com). Contango Capital Advisors is an affiliate of Zions Direct.

IMPORTANT NOTE: Investment products and services offered through Contango Capital Advisors, Inc. (Contango), a registered investment adviser and a nonbank subsidiary of Zions Bancorporation, are not insured by the FDIC or any federal or state governmental agency, are not deposits or other obligations of, or guaranteed by, Zions Bancorporation or its affiliates, and may be subject to investment risks, including the possible loss of principal value of amount invested. Some representatives of Contango are also registered representatives of Zions Direct, which is a member of FINRA/SIPC and a nonbank subsidiary of Zions Bank. Employees of Contango are shared employees of Western National Trust Company (WNTC), a subsidiary of Zions Bank and an affiliate of Contango. CCA0711-0127

Stock market apt to stay difficult for some time

Joyce M. Rosenberg — Thu, 26 Aug 2010 10:00:41 +0000

NEW YORK (AP) — Get used to a difficult stock market.

It’s nearly four months since stocks reached their 2010 highs and began falling on investors’ doubts about the economic recovery. Some analysts say it could be another year before investors get up enough confidence to restart the rally.

The economy isn’t helping them. Last week, the Federal Reserve and two mass-market retailers, JCPenney Co. and Kohl’s Corp., lowered their outlooks for the rest of the year. The CEO of networking equipment maker Cisco Systems Inc. used the same words as Fed Chairman Ben Bernanke to describe the economy: unusually uncertain.

The Fed also said last week it would start buying government debt in hopes of stimulating lending and in turn economic growth, though investors proved skeptical. The Dow Jones lost almost 400 points over four days.

But investors aren’t even resolute about selling. Stocks have racheted up and down since late April. The market began August with a burst of optimism based on many companies’ overall upbeat view of the rest of the year. The Dow rose 208 points Aug. 2, the first trading day of the month.

Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, noted that the Standard & Poor’s 500 index has moved within a range of about 1,020 and 1,217 this year. “That broad range will hold until the middle of 2011,” he said. The index closed Friday, August 13, at 1,079.25.

A similar but shorter-term prediction came from Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. “It looks like it will be this way for the rest of the year,” he said.

You don’t have to be a market pro to understand why. Private employers aren’t hiring at a pace that will get millions of unemployed people back to work. The government put the number of unemployed in July at 14.6 million. Meanwhile, many working people aren’t making enough to pay all of their bills. And then there are those with jobs who are nervous and socking money away. This all adds up to weak consumer spending that can’t give the recovery much momentum.

And there are still the fundamental problems of a troubled housing market and banks that aren’t willing to lend. Even with the Fed stepping in, those issues are likely to remain for some time.

One sign that investors aren’t expecting the economy to pick up speed anytime soon is the poor performance of small-cap stocks. When investors believe the economy is about to go on an upswing, they tend to start buying smaller company stocks on the theory that those companies will see the biggest gains when business is good. The Russell 2000 index, which tracks the performance of small-caps, is down almost 18 percent from its 2010 high close of 741.92, reached April 23.

The Dow, meanwhile, is down 8 percent from its 2010 high close of 11,205.03, reached April 26. And the S&P 500 is down 11.3 percent from its high of 1,217.28, reached April 23.

The deep troubles in the economy may well mean that even when another rally starts, it will still take years before investors can make back the trillions of dollars lost in the 2008-09 market collapse. The Dow has a long way to go before it comes close to surpassing the 14,164.53 record close it had on Oct. 9, 2007. While it is up 57 percent from the 12-year low of 6,547.05 it fell to on March 9, 2009, it’s still 27 percent below its record.

Looking at the market’s recoveries from some past collapses, it’s quite clear that this time around, stocks won’t enjoy a scenario like the 15 months it took the Dow to regain all the ground it lost in the October 1987 crash. The Dow didn’t reach a new closing high until two years after the crash.

The worst scenario was the recovery from the 1929 crash. Because of the Great Depression, the Dow kept falling until July 1932. It took about a quarter century, until 1954, for the Dow to recover all the ground it lost and reach a new closing high.

Perhaps a more likely scenario is the market’s recovery from the nearly three-year slump that started with the dot-com bust in early 2000. The high-tech collapse was followed by a recession, the Sept. 11, 2001, terror attacks and then a string of corporate scandals that sent stocks tumbling until October 2002. The Dow peaked at 11,722.98 in January 2000, then didn’t return to that level and reach a new closing high until October 2006.

May Payrolls Disappoint

Sheraz Mian — Fri, 04 Jun 2010 10:00:03 +0000

Zacks Research — The number of new jobs created in May was significantly below expectations, a clear disappointment to all who were looking for a robust turnaround along the lines of the last few months. Could it be that the extreme market gyrations of past month and anxiety about Europe caused some employers to hold off on their hiring decisions? We may have to wait to find the answer to that question in the coming days.

The Bureau of Labor Statistics reported that non-farm payroll additions for May totaled 431,000, which came in below market expectations of above 500,000. The unemployment rate dropped to 9.7% from 9.9% in the prior month.

While the headline number is one of the highest monthly gains in the past several years, but it was bolstered by a census-related hiring surge. The real number that all of us want to know about in today’s, June 4, report is private-sector additions. And that number was disappointingly weak in May, coming in at a low 41,000. This is a marked slowdown from the April tally of 231,000 jobs added and a reversal of the accelerating trend in private sector hirings since the start of the year.

While the overall trend in the U.S. labor market has unmistakably been in the right direction, the pace and strength of the improvement has been difficult to handicap. Today’s report follows yesterday’s underwhelming ADP report and the uncertain readings from the weekly claims data in recent days.

The deceleration in private-sector job creations in May could very well be a temporary phenomenon, as monthly reports are prone to significant revisions in subsequent months. But it may be reflective of deeper anxieties among employers about U.S. economic growth in the face of the expected European slowdown and uncertainty about China’s growth profile.

We continue to believe, however, that the U.S. economy remains on a firm and sustainable growth trajectory. The continuing improvement in the U.S. labor market, albeit at a slower-than-expected pace, is a contributing factor to that recovery.

Interesting Times

Scott Anderson — Fri, 30 Jan 2009 11:08:50 +0000

MANAGING THROUGH “INTERESTING TIMES” |

“May you live in interesting times,” often referred to euphemistically as the Chinese curse, is reputed to be the English translation of an ancient Chinese proverb and curse. If ever we were living in interesting times, it would be now.

To say that the current economic times are challenging might seem like an understatement. With the unprecedented events in the market over the past several months, people everywhere are concerned about protecting and preserving their money. While this uncertainty can leave all of us feeling uneasy, it can also bring forward the need for all of us to be proactive about our personal finances and manage our money with care.

Since early in 2008, the President’s Advisory Council on Financial Literacy has been working to develop policies and programs to promote financial literacy. Their goal is to provide substantive guidance and resources that can help people make smart financial choices during both good times and bad.

Last month, the council offered a series of tips for managing your money in challenging times. I offer a few of these tips below, along with information on additional available resources.

1. Understand how your deposits are insured. As we’ve discussed in previous articles, the FDIC insures all deposits at insured banks up to at least $250,000. In addition, Zions Bank is participating in the FDIC’s voluntary Temporary Liquidity Guarantee Program. This program insures 100 percent of deposits that are held in noninterest bearing deposit transaction accounts at Zions Bank (including NOW accounts with interest rates of 0.5 percent or less), regardless of the dollar amount, through Dec. 31, 2009. For additional information on how to maximize your FDIC insurance coverage visit zionsbank.com.

2. Understand how your investments are protected. Brokerage firms are required to be members of the Securities Investor Protection Corporation, which insures customer securities accounts up to $500,000, including $100,000 in cash claims, when a brokerage firm fails. To learn more about these protections, visit www.sec.gov/answers/investoralert.htm.

3. Protect your credit score. Only put on your credit cards what you can afford to pay back. For other hints on improving your credit score, visit www.controlyourcredit.gov. Also, to protect against identity theft, get a free copy of your credit report at www.annualcreditreport.com.

4. Make sure you have a rainy day fund. Keep an emergency fund worth three to six months of your monthly expenses in an insured account. If you don’t have an emergency fund, try to start one. Visit “Managing Your Money” at the Zions Bank education center to access budgeting calculators, savings calculators and more.

5. If it sounds too good to be true, it probably is. Watch out for scams trying to take advantage of all of the recent changes in our nation’s financial markets. Educate yourself at www.FTC.gov.

As we begin 2009, we can all feel a little more secure in our financial situation as we become more proactive in managing our personal finances.

Zions Bank continues its commitment to helping you through these “interesting times” with innovative products and services, as well as the financial advice and information you need to make informed decisions. We haven’t forgotten who keeps us in business, and together we will weather this storm.

A. Scott Anderson is President and Chief Executive Officer of Zions First National Bank

Featured as “The Last Word” in the January/February 2009 issue of Zions Bank’s Community magazine.

*Artwork from Rob Sheridan under Creative Commons license at Flickr.com.