When it comes to investing, there are many options. If you decide to invest in the stock market, you could do it yourself, talk to a financial planner or let a wealth manager manage your money.

Most people think wealth managers, financial planners, money managers, brokers, etc. are all the same. Part of the problem is that titles for financial sales reps are completely unregulated. This means that brokers, annuity salesmen and insurance agents are all free to call themselves advisors, financial consultants, financial planners or whatever they want.

Listen to this short video presented by wealth managers at Paragon Wealth Management about how to find the best financial advisor to manage your money.

If you watched television or listened to the radio six months ago in early March, it felt like the world might be coming to an end.  As we expected, the March lows were the market bottom.  Since then, the economy has moved back from the precipice and has gained 50%, retracing a good portion of the losses since last fall.

The following article from Yahoo! FINANCE outlines critical factors to keep in mind for post-recession investing.

Rules for Post-Recession Investing

by Rob Gordon and Jason Whitby

Despite the pundits’ pronouncements of green-shoots or signs that the economy is on the mend, many investors remain scared and understandably sensitive to the previously unimagined threats to capital market stability. In many cases, not only have they reduced their equity exposure to levels that will not help them beat inflation, many have pulled out of the publicly-traded markets entirely, and remain on the sidelines.

Return to Investing
If you are planning to retire on the assets you have accumulated or are accumulating, you need to get exposure to the equities markets and you need to do that sooner rather than later. Global equities markets work and you deserve your share of the positive long-term returns generated by them.

Generally, market declines cause panic, to quote a study by DALBAR - a leading developer of measurement systems for intangibles, such as customer behaviors, in the financial services industry. A 2003 study by DALBAR found “motivated by fear and greed, investors pour money into equity funds on market upswings and are quick to sell on downturns.” The report goes on to say that in the past 19 years, the average equity investor has earned 2.57% annually compared to 12.22% for the S&P 500 Index. This study clearly illustrates the “reactive” nature of today’s investors and just how much it costs them in return. It’s important to recognize how much emotions influence investing decisions most often to investors’ detriment.

Keys to Excellent Returns
As investors slowly emerge from their fear-induced stupor, it is important to review important principles which have provided excellent risk and inflation-adjusted returns over the last 50 or more years. With these foundational principles in place, the investor will be ready to participate in the global capital markets.

• Don’t Forget About Your Risk Tolerance
  Return statistics are perhaps the most quoted numbers in personal finance and investing. Quantitative measures of risk or volatility are undoubtedly the least quoted. When you look at your risk tolerance, consider three factors: capacity to take investment risk, need to take investment risk and desire to take investment risk. There are many questionnaires and other tools online that attempt to help investors measure these variables. Use them as a sanity check for your own measures given your previous investment experiences.
• Draft and Sign an Investment Policy Statement (IPS)
  Institutional investors, like pension funds and university endowments, have a document which defines the types of investments allowed in their portfolios. Good fiduciary investment managers have an IPS for each of their clients. An IPS takes all the relevant inputs and creates your own personal investment plan and diversified asset allocation. Essentially, the IPS helps you stick to the plan and tells you what to do when in doubt.
• Keep The Investment Decisions Simple
  With an IPS in hand, you now have specific marching orders to populate your portfolio with actual securities. Index mutual funds and exchange-traded funds (ETFs) reduce costs and provide broad exposure to specific asset classes.

These are foundational steps in the construction of your portfolio. The next question is, “How should you get back in?” This question essentially refers to the two primary options: put it all in at once or stage the money in over time. Which is best?

All at Once
For investors who have just experienced one of history’s most challenging economic periods, this option must seem the least interesting. However, in a world where market timing does not add additional return and where the expected returns are positive, it makes the most sense. Any averaging-in strategy will keep money out of a rising market. Nevertheless, averaging techniques remain very popular in the financial press and in practice. The reason for this is primarily because it feels good.

Averaging Into the Market Over Time
If you accept that you need exposure to the equity markets, there is a high probability that you will consider averaging into the market versus making a lump sum investment. Given that likelihood, what is the best way to average into the market? Quite simply, it depends on larger financial planning concerns like your need for cash and outstanding obligations. Beyond that, the options are innumerable: contribute a set amount; a set percentage of the remaining balance; a fixed dollar amount; a variable amount based on fluctuations in the market; a variable amount on a random schedule and on, and on. Here are a few important considerations as you consider your strategy:

• Formalize the plan by writing it down.
• Be careful of executing too many trades thereby incurring very high transaction costs. The research overwhelmingly states that the benefits are marginal at best and most likely are negative, so don’t erase the emotional benefit by piling on hundred or thousands of dollars of trading fees. No-transaction fee mutual funds can be beneficial in this area.
• Be careful of dollar-cost averaging up. If the market is rising, you will be buying higher and higher levels. Remember, the market has had, and we expect that it will continue to have, a positive bias as global economies continue to rise. If you divide your investment into too many pieces, you will end up investing the money over an ever longer period of time and therefore increasing the probability of dollar-cost averaging up.
• Try to divide the investments among the least correlated assets. For example if you are going to invest $10,000 into five different investments, try to pick U.S. large cap, international large cap, commodities, real estate and maybe fixed income.

Conclusion
No one really knows when it is “safe” to get back into the markets, or whether the market is experiencing a dead cat bounce, sucker rally, V-shaped recovery or W-shaped recovery. You will not receive an email, phone call or other advance notice saying, “Now is the time!” More than likely, when the news is rosy and you start feeling safe about getting back in, you will have done irreparable damage to your ability to keep pace with the market. Do your best to keep emotions out of your investments and jump in.

photo by businesspictures

photo by EngineeringDaily.net

Due to the difficult economic environment of the past 12 months, it is even more important to follow a disciplined, proactive investment strategy.  By removing emotion from your investment process, costly mistakes can be avoided.

When it comes to your 401k be sure to not make the four common mistakes outlined below.

Visit Redeeming Riches to read the entire article by Jason Topp

Do You Make These Four Common 401k Mistakes?

We all make mistakes - some of them are just more costly than others.

When it comes to our retirement savings there’s a host of mistakes that could cost you.

Because companies are shifting the responsibility of retirement on the employees, it’s vital to correct any of these mistakes as quickly as you can.

1. Bad Methods for Choosing Funds

“I’m just not sure which funds to choose so I picked what did well last year.”

Perhaps you’ve found yourself saying that before.  Picking funds based on past performance is a losing proposition because past performance is no guarantee of future results.

An all-star fund could turn into a dog for a variety of reasons.  Don’t rely only on past performance to make your decisions.

“I didn’t know what to pick so I asked my co-worker what he did.”

Bob might be a great guy, but he could be a total goofball when it comes to investing.  Sure, he talks a good game, but your needs and goals are different.  Don’t base your investments on someone else.

“I figured I’m aggressive so I just went with a more risky stock fund.”

It’s OK to be aggressive, but using only one or two funds will typically increase your volatility and expose you to greater risk.  You need to diversify the holdings.

2. Not Diversifying Your Investments

Don’t put all your eggs in one basket.

Diversification simply means spreading your money over various types of funds and asset classes (i.e. small, mid, and large sized stocks etc.).

The reason you want to diversify is because we don’t know what will go up or down in any given year.  You can take advantage of rising stars and also soften the blow on investments that are stinking it up.

3. Not Knowing Your Risk Tolerance

“I want to make big returns in my 401k without much risk.”

Really?  Let me know when you find something like that because I’d like to use that too!

Of course we all want to make good returns without much risk, but those investments don’t exist - if they do, they are typically too good to be true.

You need to understand your risk profile and how that impacts your decision-making with your 401k funds.

4. Not Paying Attention to Company Match

Although the recession has led many companies to forego their 401k matching programs, there are still some who offer some sort of match.

A big mistake often made is not knowing what kind of match the company is offering resulting in leaving free money on the table.

If a company is matching dollar for dollar up to - say five percent, it’s silly to only put in three.  You’re leaving an additional two percent out there that could be matched.

At the very least you should be putting enough into your 401k to take full advantage of any money they are going to give you.

Pay attention to the details of your company’s matching program and by all means take what they are willing to give you!

Reaching retirement is up to you, so make sure you are doing all you can to correct mistakes early so you can reach your goals.

photo by adam.dras

Over the past year investors have been affected by what some describe as “the perfect storm“.  On Wall Street the S&P was at 666 at its low, now it has rallied 58% from that point. For those that have weathered the storm it’s time to assess what lessons can be learned.

Below are excerpts from an article on CNNMoney.com by Penelope Wang.

The worst financial meltdown since the 1930s began, you’ll recall, with a bang. Early September 2008 the housing crash led to the federal government’s takeover of mortgage giants Fannie Mae and Freddie Mac — whose dividend-paying stocks were a cornerstone of many retirement portfolios.

The five following lessons from the Crash of ‘08 will help you strengthen your finances going forward — and should limit the damage in the next crisis, wherever and whenever it may come.

Lesson 1: Asset allocation still works — just don’t expect a guarantee.

In the wake of the crash, you may have concluded that asset allocation — the traditional strategy of diversifying among stocks, fixed income, and cash — is a bust. After all, your U.S. and foreign equities and all sorts of bonds lost money last year.

“The basic principles of asset allocation need to be revised,” says MIT finance professor Andrew Lo. He and other experts argue that since market volatility is rising, you must now own other assets — such as hedge-fund-like investments — in addition to stocks and bonds to manage risk. And you must be prepared to shift your mix tactically from time to time. “You need to be proactive and adjust as the market changes,” he says.

And if you look at the numbers, you’ll see that proper diversification did you considerable good in this meltdown.

Lesson 2: The world is riskier — and will stay that way.

Remember the Great Moderation? The phrase describes the recent quarter-century period when economic growth looked limitless and the long-term risk in stocks seemed to be disappearing. Between 2003 and 2007, for example, the Chicago Board Options Exchange Volatility Index (VIX) — a well-known gauge of how risky investors think the market is — hovered in the 10-15 range. That was down considerably from the index’s historical average of about 20.

Risk, of course, returned with a vengeance. Last October, at the height of the banking crisis, the VIX hit an all-time high of 80. Today the VIX has fallen back to around 25. The question is, should you brace yourself for more nerve-jangling spikes? Yes, according to many investment pros, including Yale finance Professor Roger Ibbotson, founder of Ibbotson Associates.

Revisit your investment mix to make sure you’re taking on an appropriate amount of risk in light of your financial goals and your tolerance for more market shocks.

Lesson 3: Real diversification is harder to achieve than it looks.

The best way to avoid too much exposure to any industry or asset — especially frothy ones — is to drill down in your portfolio to see what you actually own. Another idea: Stick to index funds. As noted, an S&P 500 or total stock market fund can’t keep you from getting caught up in the market’s momentum. But it’s always clear what index funds own, because they mirror well-known benchmarks for which information is readily available.

Of course, owning different stock funds — be they actively or passively managed — won’t adequately diversify you, since most equities are positively correlated. Translation: They tend to move in the same direction. And correlations among assets have been growing, as global markets are now intertwined.

Lesson 4: Recognizing a bubble is hard. Hedging against one is harder.

“To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong,” said then-Federal Reserve chairman Alan Greenspan in 1999. He should know how hard that is: He failed to detect two of history’s frothiest markets — in tech stocks and in housing.

The one sure hedge: a healthy dose of cash, an asset all but forgotten during the boom. Don’t ignore it now.

Lesson 5: You can’t time the market, but you can time yourself.

Every year that passes is another year you get closer to retirement. Over time this will require you to dial back the percentage of your nest egg that you hold in equities.

Then there are circumstances specific to you and your family. Sure, your allocation may have been right when you last rebalanced your portfolio. But what if your employer has run into financial problems recently and you fear losing your job? What if your spouse is coping with a medical emergency, or you’re now financially responsible for an aging parent?

If you’re dealing with these kinds of situations, it’s more important to preserve your principal and build up some additional cash reserves than to earn the highest possible returns. In that case there’s nothing wrong with shifting some of your equities into safer, more liquid investments.

This is not a repudiation of asset allocation, but a recognition that your life has changed. And it’s that kind of timing that will guide your portfolio safely through good times and bad.