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By: Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Sunday, June 22, 2003
We remodel our homes - sometimes more than
once. Why not do the same for our investment
portfolios?
The markets have altered many nest eggs, especially
those heavy with equities. Some may only be
bruised, others require significant repairs.
If your portfolio is sputtering, new directions
are worth considering. But don't just change.
Know where you are heading.
Many investors focus on preserving capital.
Some emphasize portfolio growth. Others require
dependable retirement income.
Take command of your fortune. You be the architect
of your financial ship.
These seven powerful habits assist the remodelling
journey:
1. First, the expectations
- start by asking
what is important to you about financial security.
Your advisors should be asking the same question.
Determine what your investments are expected
to provide. Revisit the retirement income you
need.
Estimate the portfolio required when you get
there. Recalculate the investment rate of return
you need to reach your goal.
2. Control your destiny
- you influence many
factors. How about the risks you take, staying
invested within your investor profile, the
amount of diversification and your time horizon?
Your particular mix of equities, bonds, cash
and real estate has significant impact on portfolio
returns. This important cornerstone is easily
controlled.
3. Resist yesterday's winners
- chasing the
best performing stocks and funds is futile.
Yesterday's winners can disappoint tomorrow.
A portfolio with emphasis on consistent returns
is preferable to one with emphasis on performance.
Choose investments that you understand.
4. Tally investment costs. Add up all the
investment costs that you incur, both the costs
that are invoiced and those that are not.
For example, mutual funds include management
costs (MER) deducted directly from the funds.
Front loads, deferred sales costs and account
fees may also apply.
5. Know when to fold - all losses start out
small. Therefore, incurring losses is not the
most detrimental horror for portfolios. Staying
too long with the losses is the real problem.
Make a promise to yourself. Never become emotionally
attached to your investments.
Instead, contain the damages when investments
lose value. Simple strategies work, such as
selling at 25 per cent below the purchase price.
No second guesses please!
6. Split the income - many families have one
spouse who earns the higher income and owns
more assets. Perhaps, a spousal loan at the
prescribed rate can improve income splitting.
If the goal is to equalize retirement incomes,
the higher income spouse can pay the family
expenditures. The lower income spouse can save
and accumulate assets.
7. Arrange the estate - at the very least,
review your will. Investigate whether an enduring
power of attorney is useful.
Examine your wishes for the beneficiaries
and the estate allocations. Determine if your
executors, guardians and trustees still want
the duties, responsibilities and, perhaps,
personal liability they incur.
Consider "estate freezing" and "trust" techniques
if you have an involved estate. Perhaps, passing
part of the value to family members now may
be beneficial.
That is what it takes to be your financial
architect. If the portfolio is in need of remodelling,
adopt these seven powerful habits. Your nest
egg will be glad you did.
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