Detour Ahead

My husband, Tom, and I just returned from Asheville, North Carolina.  We drove to Asheville so Tom could participate in a century ride to raise money for cancer research with the Leukemia and Lymphoma Society’s Team in Training program.

Being the diligent planner, I mapped out our course and researched the construction delays along our route.  Fortunately, we were able to avoid a major back up on I-75 southbound just over the Tennessee border where the road is being repaired due to a rock slide.  Although our alternate route was miles longer, we were still able to make it to Asheville ahead of some of the other participants who did not take a detour.

Many of the financial detours that we encounter in our lives can lead to frustration because, more often than not, they are beyond our control.  In Cincinnati, Procter & Gamble employees are facing a potential detour in their careers with the company’s latest downsizing announcement.  It’s not only the people leaving whose lives will be changed, but also the remaining employees as well.  Their jobs may look drastically different a year from now. 

When a client discovers they are facing an unexpected career change, major health issue, loss of a loved one or are going through a divorce, the original path they were on is suddenly changed.   All of these circumstances can feel overwhelming because you feel like you are suddenly being veered off course.   

This is why it is so important to create a financial plan and to continually monitor it.  This can help to put the obstacles you face in perspective.  Will the change in careers mean you will have to work longer – or will your new job offer a faster road to retirement?  A health crisis could change your priorities causing the second home you always dreamed of to seem less important than it once did.  If you become suddenly single you may realize you are much more financially savvy and emotionally stronger than you originally thought. 

No matter what financial detours you encounter, we are here to guide you through them.  What may initially seem like a disaster may not have the impact you fear.  The most important thing is to start mapping out an alternative route as soon as possible so that you can lessen the impact.  Just make sure you let us know when we can help.

Christine Carleton, CFP®

ccarleton@taaginc.com
www.taaginc.com

Playing to Fear, Not the Plan

After combing through what’s become a lengthy “future blog topics” list for this week, I was sidetracked by the recent onslaught of advertising by the world’s largest asset manager, BlackRock.

I don’t have anything against the firm, per se.  They aren’t managing more than $3 trillion just by accident.  It’s just the message behind their most recent ad campaign seems to be a perfect example of what we try to warn against on a regular basis; Wall Street playing to investors’ fears.  Even in a market that has been more positive than most might have expected since the fourth quarter of 2011, the message persists; what are you afraid of and how can I create a product to sell you that answers that fear? 

What’s wrong with that process?  In traditional business, absolutely nothing.  Our society has been built on the successes of those producing products to fit a need.  However, with investing, the process tends to completely disregard the question of whether or not the product is actually an appropriate investment for the investor’s situation. 

The product answers to fear, it should answer to a plan.

The ad states “2% ISN’T A RETURN; IT’S A RETREAT.”  Ok, I’ll agree.  The return on safe instruments such as cash and short term, high quality bonds are, as can be expected in this environment, paltry at best.  However, that doesn’t mean they don’t play a vital role in your portfolio.  “Mattress money” is meant to be just that, a place to safely store the returns earned on the risk you take in the stock market or other investments. 

What does BlackRock suggest you do?  Try some of their products, of course.  One they mention specifically, the BlackRock High Yield Bond Fund, might certainly boost your expected return, but at what cost?  Well, if you look back to Morningstar as to how the fund performed in 2008, it lost 27.8% of its value.  That doesn’t make it a bad investment, but it’s not something I’d want in my mattress.

Another suggestion is the dividend-focused BlackRock Global Dividend Income Fund.  Dividends are certainly a hot topic of late, and, for all I know, this particular fund, despite its 1% expense ratio (and up depending on share class), may be a perfectly reasonable way to access a global portfolio of dividend paying stocks.  But, just like the High Yield Bond Fund, that doesn’t mean it’s a reasonable replacement for cash or high quality fixed income instruments.

We’ve said it more than a few times in this space, there’s nothing in investing that can’t be boiled down to the relationship between risk and reward, fear and greed.  There are lots of ways to seek out returns that might outperform lower yielding instruments, but not without taking the appropriate amount of corresponding risk. 

What’s more important is to understand why you hold various asset classes, what amounts you hold and how that relates to your tolerance for risk and your long term goals and dreams.  It is our goal to assist our clients with this very important process.  If you ever have questions on how this relates to your plan or know someone who might, please let us know.

Have a great week!

Chip Workman, CFP®

cworkman@taaginc.com

www.taaginc.com