MoneyWatch

Athena financial & insurance services, inc.

Registered Investment Advisors
Text Box: One of the most serious and long-lasting effects of the collapse of last decade's bull market is also one of the least talked about—many investors forgot the importance of goal setting, patience and discipline. You can’t really blame them. Scores of otherwise intelligent men and women quit their jobs to trade stocks through discount online brokerage services. Making money looked easy. And for a while it was. Then the bubble burst. This attitude showed up in subtler ways as well. Rather than defining investment objectives, developing strategic asset allocation plans and structuring disciplined portfolios to meet their goals, many investors dispensed with planning altogether, relying instead on Internet sites, news media and dinner party conversations to determine their financial futures. The heady days of the 1990s may have passed, but the attitudes they spawned have not. Both individual investors and the media continue to look for the next “hot” thing—the sector that will spark a market revival and spur their portfolios to new heights. That makes it more important than ever to look beyond the hype and address the way your portfolio is structured. Perhaps the biggest mistake investors make is they fail to properly diversify. It is not unusual for many investors' portfolios to be skewed heavily to U.S. equities—as a result of participation in employers' 401(k) and stock-option programs. Those investors tend to have a third or more of their total investments concentrated in a single company's stock. Granted, the long-term expected returns from stocks are much higher than those from bonds or money market instruments, but this kind of concentration is unwise. It places the bulk of an investor's net worth at risk to developments affecting a single market, and in many cases, to events affecting a single company. This is where yours truly comes in. An investment advisor can help you develop diversification strategies and asset allocation approaches which work intelligently and consistently towards achieving your goals. Discipline is critical. In fact, asset allocation—determining your equity and fixed income mix—is the single most important decision investors face. More important than security selection. Generally speaking, a more aggressive portfolio has historically performed better over time than a conservative one. But being aggressive also means being willing to take on more risk. Investors seeking to build their net worth by investing regularly over time can afford to be more aggressive than investors who have a shorter time horizon and less risk tolerance. Investors need to find a blend of asset classes they are comfortable with, taking into consideration their goals and financial situation. Younger investors have more time to let compounding work for them, while older investors will want to steer a more conservative course. Once you have developed a portfolio strategy you need to keep it attuned to changes in market values, sectors and personal financial objectives. With the assistance of your financial advisor, rebalancing your portfolio can help to maximize its potential gains over the long term. As many investors have found, the key to investment success is not just maximizing gains in rising markets, but not losing gains when markets turn down. Adjusting your portfolio to meet the demands of changes in the markets and the economy is critical to long term portfolio success. Of course, there are no guarantees in investing. Even the best investment advisors can't promise returns. But a trusted advisor can provide you with invaluable, expert and objective guidance in dealing with what is often a complex and emotional subject of great importance: your money.▲

Setting your financial course...

Volume 17, Issue 21

October 23, 2006

Defining Investment Objectives