Simply put, your investment risk tolerance is the amount of stress you experience when your account declines. In other words, how do you feel if your account declines five percent? How about 10 percent? What about 20 percent?

If you invest too aggressively for your risk tolerance, then at some level of decline you may reach a breaking point. When that point is hit, many investors feel the need to sell their investments in order to protect themselves. As a result, they make the classic mistake of selling out right at the market bottom just before the market rebounds. This causes them to lock in their losses and miss out on future gains.

To assess your risk tolerance level, please take Paragon’s Risk Tolerance Survey.

The following article discusses different points to be aware of your own individual risk tolerance.

What’s Your Risk Tolerance?

By Miranda Marquit

To view the entire article, please visit money.usnews.com

Self-knowledge is one of the best tools you have when you invest. Understanding yourself can help you build a portfolio that works for you, and it can keep you from acting impulsively in a way that damages your long-term returns.

What is Risk Tolerance?

Risk tolerance is just what it sounds like: A measure of how much risk you can handle as an investor.

There are some of the factors that go into your risk tolerance:

What you can afford to lose: How much money do you have available? And how much of it can you afford to lose? This is about more than whether or not you have sufficient assets to handle capital losses; it’s all about whether or not you can have the money locked away. Can you afford to put $400 a month into an IRA without stretching your finances to the breaking point? If not, consider committing a little less.

Your time frame: The length of time remaining until you reach your goal matters when it comes to how much risk you can handle in your portfolio. Retirement is a good example. As you approach retirement, you have a lower risk tolerance, since you don’t have decades to rebuild if a riskier investment causes problems. Take into account the time frame in question as you determine your risk tolerance.

Your emotional ability to handle risk: Not only does risk tolerance include your financial ability to handle a certain level of risk, but also your emotional ability to deal with risk should be considered. If risky investments are going to stress you out to the point that it affects you in other areas of your life that can be an issue. It also matters if you are so risk averse that you never include investments that can grow your wealth.

Risk tolerance changes over time. Age, income, and circumstance all interact to form your current level of risk tolerance. As various factors change in your life, you will find that your risk tolerance rises or falls. Pay attention your current risk tolerance, and be aware of the way your feelings about risk are affecting your judgment.

Compensating for Risk Tolerance

Sometimes you have to compensate for your risk tolerance. If you have a high risk tolerance—particularly if you enjoy taking risks—it can lead to overconfidence in your investing. You might decide that you can “afford” a course of action that you really can’t. You might also try to invest in riskier assets and schemes, and overextend yourself.

Having a high risk tolerance might also make you more vulnerable to scammers. According “Outsmarting the Scam Artists,” by Doug Shadel, those with more assets tend to be those most likely to be scammed. Your penchant for risk, and the high returns that come with it, could spell trouble for your portfolio.

You need to compensate for this problem by dialing it back a little bit. Be sure to keep part of your portfolio in less risky investments to serve as a safety net. Also, be wary of new schemes and “opportunities” that might actually be scams.

On the other side are those with very low risk tolerance. If you have a hard time taking your investing outside of cash products and bonds, you could find yourself in trouble. You won’t be able to build wealth at a rate that will allow you to secure your financial future. To compensate for this situation, consider low-cost index funds.

The important thing is to know yourself. You need to be aware of your weaknesses when it comes to investing, and be honest about what’s coming if you expect your portfolio to provide you with long-term wealth.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses three basic investment strategies. While here at Paragon we have a different investment strategy, it is always good to review the basics.

Basic Investment Strategies

To view the entire article, please visit finweb.com.

Your investment strategy deals with the overall, long-term guidelines that you set up and implement in an attempt to ensure success in meeting your financial goals. Most strategies used to invest in the stock market fall into three general categories: fundamental analysis, technical analysis, or buy and hold the market. Let’s examine each technique.

The fundamental analysis approach is primarily concerned with value; it examines factors that determine a company’s expected future earnings and dividends as well as the continued dependability of those earnings and dividends. It then attempts to put a value on the stock accordingly. Therefore, an investor who uses this approach seeks out stocks that are a good value; in other words, stocks that are priced low relative to their perceived value. The assumption is that the stock market will later recognize the value of the stock and its price will consequently increase.

The investor who uses technical analysis attempts to predict the future price of a stock or the future direction of the market based on past price and trading volume changes. This approach assumes that stock prices and the stock market follow discernible patterns, and if the beginning of a pattern can be identified then the balance of the pattern can also be predicted well enough to yield returns in excess of the general market. Most academic studies of this approach have generally concluded that investing based on purely technical analysis does not work well.

The buy-and-hold-the-market approach is the benchmark against which any other approach to market investing should be measured. This strategy provides the returns that would be obtained by buying and holding the stock market, often defined as the Standard & Poor’s 500. Of course, no individual investor would likely buy all 500 stocks that make up the index (although this can be achieved by buying shares in an S&P 500 index mutual fund). By investing in a large number of well-diversified stocks, however, an investor can build a portfolio which closely resembles the S&P 500.

The buy-and-hold-the-market investment approach is used as a benchmark because no other investment approach based on analysis is valid unless it can outperform the market over the long run. When an investment produces a return that’s above the market return with the same risk, the difference between the two returns is referred to as an excess return. The excess return represents the added value of the approach that’s used.

The type of strategy that you ultimately employ will depend in large measure on your conceptual views of two basic stock market theories. According to the efficient market theory, stock prices reflect all publicly available information concerning that stock and so are extremely close to the true value of the stock. This is not to say that prices reflect the stock’s true value at all times, but that prices on average reflect the stock’s true value. Variations about this average price can exist. Conversely, the random walk theory (named for the seemingly random steps of a drunken person) expounds that these variations are unpredictable; sometimes they are positive and sometimes negative. As such, they are unpredictable; they cannot be used to obtain excess returns.

Therefore, the investor who believes that the market is efficient would see no point in pursuing the fundamental approach which seeks to find stocks that are selling significantly above or below their value, because the price very closely reflects the stock’s true value. Alternatively, this investor would concentrate on developing a more efficient portfolio rather than concentrating on specific stock selection, a portfolio that provides returns closest to the market’s return at a specified level of market risk. The investor simply determines the amount of risk that he or she is willing to bear and then builds the portfolio accordingly.

Investors who believe that the market is inefficient proceed on the assumption that variations in the way people receive and evaluate information cause the prices of some stocks to deviate significantly from their true value. Therefore, they see occasions for finding under- and overpriced stocks through diligent analysis, and believe that they’re able to outperform a buy-and-hold-the-market strategy.

Based on substantial research evidence, many analysts believe that the market often is inefficient, and that there are indeed opportunities for outperforming the market. The excess return potential generally appears to be in the range of 2 to 6 percent annually. Over a lifetime of investing, even relatively small additional returns such as this can lead to substantially greater wealth.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

It is that time of year again, tax season. The following article is about some investment strategies to help minimize the tax implications during retirement.  Read on to find out how.

How To Minimize Taxes On Your Retirement Income

To view the entire article, please visit forbes.com.

Nobody likes paying taxes. But what can be a mere annoyance while you’re working can be a major headache when you retire. That’s because taxes are generally the biggest expense in retirement and retirees often need every penny of income to make ends meet while leaving enough of a nest egg to ensure that they’re income will last as long as they will. Along those lines, we recently received a couple of questions about how to structure retirement income in order to minimize taxes in retirement. Here are some things to consider:

Location, Location, Location

No, I’m not referring to moving to a lower tax area (although that would help a lot too). I’m talking about the location of your investments. If you’re like most investors, you’ve probably made investment decisions about each of your accounts (employer’s retirement plan, Roth IRA, rollover IRA, and taxable accounts) independently.

The problem with this is that not all investments are taxed alike. Since cash and bonds are taxed at ordinary income rates, you’ll want to shield them from taxes in your retirement plans the most. Next would be mutual funds with a high turnover since stocks held for less than a year are also taxed at ordinary income rates. If you have gold or any other “collectibles,” they’re next since they’re taxed at a 28% rate.

If the lower tax on qualified dividends expires on schedule at the end of the year, you’ll want to shelter high-yield stocks and stock funds too. Since stocks held for more than a year are taxed at lower capital gains rates, individual stocks and low turnover mutual funds like index funds would be a lower priority for retirement accounts. Coming in last would be international stocks and funds since having them in retirement accounts disqualifies you from using the foreign tax credit to help offset taxes withheld overseas. The volatility of the last two groups also make them good candidates for a taxable account since you can sell them and write the losses off your taxes as long as you don’t repurchase a similar investment within 30 days of the sale.

However, don’t let the tax tail wag the dog by letting the size of your accounts determine your asset allocation. For example, if you have $300k in retirement accounts and $100k in taxable investments, this doesn’t mean you should have $300k in cash and bonds and $100k in stocks. Instead, start with the appropriate asset allocation based on your time horizon and risk tolerance. Then place them in your retirement accounts, starting with the most tax-inefficient investments. Let’s say your portfolio should be $240k in stocks and $160k in bonds. You’d start by placing the $160k of bonds in your retirement account, which allows you to invest the other $140k in your retirement account in stocks (starting with the highest turnover funds) as well as the $100k in the taxable account.

Do you have company stock in your 401(k)?

Before you start selling the stocks in your 401(k), there is a special rule to be aware of that allows you to pay the lower capital gains rate on the growth of your employer stock in your 401(k). (You still have to pay tax at regular rates on the total cost of that stock.) The key is that you have to take that stock out as an “in-kind distribution,” which basically means that you move it directly into a brokerage account instead of selling it first as most 401(k) distributions are done.  You also forfeit this option if you roll it into an IRA.

How young are you?

Speaking of IRAs, the next question might be whether to withdraw first from your IRAs, your 401(k), or your taxable account. The first timing factor is your age. If you retire in the year you turn 55 or later, you can take withdrawals immediately from your 401(k) without a penalty, but you’ll have to wait until age 59 1/2 to make penalty-free withdrawals from your IRAs (unless you take substantially equal periodic payments until the later of 5 years or when you turn 59 1/2). Keep in mind that you can always withdraw anything from your taxable accounts and the contributions from your Roth IRAs without penalty at any time and for any reason. Finally, when you turn 65, you can also access any HSAs you have for any purpose without penalty (although HSA distributions are subject to ordinary income tax if not used to pay for qualified medical expenses).

Will your tax rates be going up or down?

The second timing factor is whether you see your tax rates going higher or lower in the future. For example, if you think the lower capital gains rate will expire at the end of the year, it could be a good time to take some gains out of the taxable account. If you’re more worried about higher income tax rates, take withdrawals from your pre-tax accounts or consider converting them into Roths, which means you pay the tax now at the relatively lower rate instead of at the higher future rates. Just be aware that you may need to spread those Roth conversions over more than one year so they don’t push you into a higher tax bracket and thus defeat the whole purpose.

Another reason to take withdrawals from your pre-tax IRAs and 401(k) accounts first is if you’re retiring early and haven’t started collecting Social Security yet. That’s because future withdrawals from these accounts could cause more of your Social Security to be subject to taxes and push you into a higher tax bracket. In this scenario, it could make sense to reserve the taxable accounts and nontaxable Roth IRAs for when you’re taking Social Security since they won’t have the same effect.

The reverse would be true if you’re receiving income from part-time work or a side business for the first part of your retirement. In that case, withdrawals from taxable accounts and Roth IRAs could be preferable since your tax bracket is likely to be higher than when you eventually stop working. Between the two, you’ll want to tap the taxable account first and let your Roth IRA continue growing tax free.

The Bottom Line

Unfortunately, there’s no way to eliminate taxes altogether, but you can use some of these strategies to minimize their impact on your retirement income. You can do this yourself or hire a financial professional who does proactive tax planning rather than just tax preparation. Either way, I hope these techniques can make this time of year a little less taxing for you in retirement.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In preparing for retirement, there are a number of items to consider. The following article provides three simple steps to prepare for a fulfilling retirement.

How to Prepare for a Fulfilling Retirement

Please visit money.usnews.com for the entire article.

By Dave Bernard

Sooner or later, each of us will come to a point in our life when we cross over to join the ever-growing group of retirement-age people. Many of us will wonder how it is possible that we have become 65 years old. Hopefully the shock will be momentary, and we will get on with living.

Of course, to experience a fulfilling retirement life we have to plan and prepare for this moment. Rolling into age 65 without having taken the necessary steps to prepare can result in confusion, stress, and boredom. Worst of all, those who don’t prepare risk missing out on opportunities to take on inspiring second careers or exciting new hobbies.

It is not easy to plan and prepare for retirement when today already seems to consume 110 percent of our time and effort. One can easily become overwhelmed with the myriad of investment options and convoluted requirements for Social Security and Medicare.

Amid all of this complexity, there is one rule of thumb to understand and follow. It readily applies to financial preparations for retirement but also extends beyond that: Live within your means. Or to put it another way, don’t spend your money before you earn it. This rule of thumb can help you to focus your finances before and during retirement. Here’s why living within your means is the key to a fulfilling life before and during retirement:

You avoid adding debt. Buying on credit has been the downfall of many hard working people. Granted, there may be emergency situations where you have no choice but to break out the credit card to tide you over. The problem is buying things on credit you do not need. Spending money you do not have for something you want, regardless of whether you can afford it, is a recipe for disaster. A better course of action is to save up until you can pay cash instead of charging it. Don’t spend your money before you earn it. And don’t try to keep up with your neighbors by chasing more bright and shiny things. Debt avoidance is especially important in retirement when your income is reduced.

Saving becomes easier. If you are living within your means, when you get to the end of the month you should have something left over. Since you are not spending this residual you can put a portion of it aside into savings. If you continue to set aside a little something on a regular basis it will grow. However, if you are living beyond your means, this potential savings will go toward credit card interest or other black holes.

You discover what makes you content. Living within your means gives you a better understanding of what is most important to you. Instead of buying impulsively, you carefully weigh the cost and start to make better decisions. You realize it is not necessary to always eat at five-star restaurants. Suddenly Levi jeans look just as good as $200 dollar pants. A new house is not so critical if it will lock you into a big long-term mortgage. You start to grasp the reality that material possessions do not equal personal freedom. If you cannot afford it, you discover that life will go on and you can still be content.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

How will the markets react to the election?  Do you buy if Romney wins and sell if Obama is re-elected or do the opposite?  Most people’s answer to that questions depends upon their particular political persuasion.  However, if you take off the political glasses what does the choice look like?

There have been a lot of statistics thrown around lately regarding the impact on the markets of who wins the white house.  In today’s WSJ Ahead of the Tape column by Spencer Jakab, a study by Barclays starting in 1929 shows that the market has risen 10.8% annually under Democrats and 2.7% under Republicans.  According to that data we should all want the President to win.  However, “there are lies, damned lies, and statistics” as Mark Twain said.  Economic policies enacted by governments can take years to implement and the consequences (both good and bad) can be felt years down the road. The growing debt burden as the prime example.   Sometimes Presidents preside during booms and their followers reap the aftermath.  Some Presidents take office during bear markets and the markets have nowhere to go but up and some encounter the exact opposite.  Politicians of course will always take the credit for the good and assign blame for the bad.  Trying to separate and assign the real cause and effect is a battle that constantly being waged.

There is no doubt that the GOP is the more business friendly party in general and that is especially true this time around.  So does that mean that the market will take off if Romney is elected?  It’s hard to say.  On the surface it would seem that a more business friendly administration would result in strong stock market gains.  However, the past four years have seen anemic economic growth but good stock market gains.  I have seen all too many investors sit out the last four years and miss out on the gains because of their political beliefs.  My main point is that it when the entire historical record is examined period by period it shows the futility of trying to time the markets for political reasons.  It is far better to stick with a proper asset allocation through thick and thin despite one’s political beliefs.

Depending on the election result and market conditions, we are considering making a short-term trade based upon the election results in order to take advantage of the possible emotional reactions many might have to the election outcome.  The WSJ article previously mentioned cites a study we have been looking at that shows the market tends to do well in November if the challenger is elected and can be the second-worst month of the year if the incumbent is re-elected.  The election is too close to call ahead of time to make a decision yet but we are watching and waiting to see if an opportunity develops…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

With yesterday’s presidential debate, one has to wonder how this year’s election will affect their portfolio. Read on about the about the market trends with different presidents.

Can You Build A Politics-Proof Portfolio?

visit Forbes.com to read the entire article

Who will make you richer, dear investor? Mitt Romney, or Barack Obama?

Ideology aside, if you just put a measly $10,000 on Bill Clinton‘s first day in office and took it out on his last day, you would have done much better than if you put it in the market on Bush’s first day and took it out on his last.

This year’s election is all about the economy, the markets.  Sure Monday night’s debate will be about foreign policy. But this isn’t the “islamofascists under your bed” years of the Bush administration.  The Iraq War is over.  Afghanistan is winding down. Osama bin Laden is dead. Americans aren’t been flown in to Libya to aid in regime change.  These are different times, and Americans are by and large not that interested in foreign policy. Only political junkies and conspiracy theorists have a stake in this debate.

What we are interested in however, is money!

Homeland security?

No. Job security is much harder by comparison, and more home grown. We also do not want to lose anymore in the 401k than we already did back in 2008.

“I think when it comes to investing, this a wonderful moment in time to be a coward,” says Eric Singer, fund manager of the small Congressional Effect Investor mutual fund (CEFFX).

Market pros constantly try to ascertain how external events, from wars to famine, but also legislation, affects stock market performance. Presidential election cycles are no exception.  Right now, the Republican voters on the streets will tell you that the reason the economy is so bad is because companies are afraid of Obamacare. However, that theory can easily be debunked.  The predecessor of Obamacare is happening in Massachusetts.  It’s unemployment is below the national average.  Companies are not fleeing the state because of healthcare reform.  Nor, obviously, have they stopped hiring.

So the other issue is regulatory uncertainty.  That is a fact.  A Republican controlled Washington will be deregulatory.  But a Republican White House with a Democratic Congress will likely be just as confusing as things have sort of been under Obama.

Economists, historians, and stock market analysts have crunched copious amounts of data over the years to predict market movements, and the results hold promising news for investors. Since World War II, the S&P 500 Index has risen in 12 of the 16 election years, delivering an average annual return of 8 percent, according to Ned Davis Research.

Looked at over a long period of time, as in decades, clear patterns begin to emerge between elections and market cycles. Twelve of the 16 bear markets between 1942 and 2002 happened in the second year of a presidential term, according to research by Marshall Nickles of Pepperdine University. Bull markets, on the other hand, typically run during the last two years of a president’s term.

The highest gains are generally posted during the third year of every president’s term, which average an annual bounce of 12 percent, when the market is more accustomed to the macro trends.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

It can be risky to base your investment philosophy off of which political party may or may not win the upcoming election. Read the following article for sounds tips on staying grounded during election time.

Real World Politics Meet Real World Investing

visit Forbes.com to view the original article

This is the time of year when you start to see investment ideas based on predictions of the US Presidential Election. There are lists of stocks that should or could go up under a Republican administration and a companion list of companies that are predicted to rise under a Democratic administration.

Personally, I don’t think selecting specific stocks tied to the outcome of an election is a very good idea.  While investors could select the right stock for the right reasons, there’s too much company specific risk in any given stock:  loss of a key supplier, scandal, management changes, unfavorable currency fluctuations. And many election issues are not simply resolved by who ends up occupying the White House—far more complex analysis is required.

The free market, in theory, can do some of this homework for you. These same election issues are already being voted on daily, ahead of November 6, in Benjamin Graham’s “voting machine” across many companies.  Motif Investing recently published 21 thematic indexes—called motifs—to “poll the votes” ahead of the election: everything from Obamacare to Cleantech. This policy-tracking isn’t completely scientific, not yet at least, but politically-oriented motifs offer a window into how each Party’s policy positions are playing out in real economic terms, which for self direct investors, could prove to be a useful tool.

The top performing Republican issue motif index for the last month was Guns, Guards and Gates, up 2.5% for the month and 15.9% for the year. This index includes companies such as Smith & Wesson (SWHC), Tyco International (TYC), Alliant Techsystems Inc. (ATK) and other security companies.   Although the President has not done much to affect relevant laws, guns is always a safe get-out-the-vote issue for the Republican base.

Likewise, the top performing Democrat issue motif index for the last month was Senior Care that includes companies such Medtronic Inc. (MDT), Fresenius Medical Care AG & Co. (FMS), and DaVita Inc. (DVA). It is up 2.9% this month and 27.7% for the year. With Obamacare front and central in this election, this index tracks the companies that benefit from a growing insured ranks and an aging America.

In addition to the specific issues, this is an election about big money donors. President Obama and Governor Romney could end up spending over $1B each on this election. Just as some polls show President Obama with a slight edge, the Democratic Donors motif index is ahead of the Republican Donorsmotif index. Specifically, Democratic Donors that includes stocks like Time Warner (TWC), Google (GOOG) and Microsoft (MSFT), is up 2.6% for the month, up nearly 33.5% in the past year.  While the companies in Republican Donors which includes Goldman Sachs (GS), Exxon Mobil (XOM) and Sheldon Adelson’s Las Vegas Sands (LVS) —increased 1.3% over the past month and 25.3% over the past year.

Unfortunately, no matter who wins the election, many Americans believe that the country is going to remain polarized into haves and have nots, with neither the Republican or Democratic agenda dictating the business climate. For that the Income Inequality motif index tracks stocks that caters to the 1% and the 99%.  This index consists of luxury retailers like Saks (SKS), Tiffany (TIF) and Ralph Lauren (RL) as well as deep discount retailers like Big Lots (BIG) and Dollar General (DG).  It is down 0.1% for the month, but up 20.3% for the year.

Tonight many of these issues will be on display in the vice presidential debate between Paul Ryan and Joe Biden.  There will be lots of chatter and noise the next day from pundits, with the somewhat ironic result that real clarity may be hard to come by.  I will instead be watching how investors vote with their buys and sells. Especially until the real votes come in on November 6.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

With the next presidential election quickly approaching, many investors are concerned about the impact the election will have on their investments. This article reminds investors to keep an overall long term strategy versus focusing on the immediate political impact to the economy.

This Year’s Election Proves Politics And Investing Don’t Mix

visit Business Insider to view the complete article

The battle for the White House is beginning to heat up, and no one feels the burn more than investors, who plan to move assets in the next six months.

That’s according to a survey released on Thursday by financial services firm Edward Jones, who found that 90 percent of investors are wary of what the next president will do to their nest egg.

“We didn’t expect 90 percent to say they’re making changes,” Kate Warner, investment strategist at Edward Jones, told Your Money. “But economics drives investment decisions, so if you tie politics to this, it makes sense.”

We asked Warner to elaborate on the survey and explain the fear that’s been driving investors’ decisions around this time.

Tax concerns. Though Warner believes most investors “aren’t paying close attention” to what either candidate is saying, both Obama and Romney have warned that if the other guy is elected, voters will see higher taxes. “I think that’s registered (with voters) and reinforced this fear among higher income respondents,” says Warner.

The recession. Both candidates play up the sluggish economy in their rhetoric, using imagery that’s sure to elicit fear and raise tempers—think unemployed factory workers, struggling families, and spoiled rich kids. “It’s making people feel worse,” says Warner, so “they want to be more conservative in their portfolio,” putting more of their assets in bonds than in stocks. “However bad you think the economy is, listening to the campaigns makes it worse,” Warner notes.

Sweeping changes. The notion that whoever wins the election will push the country in a different direction is a prevalent one, says Warner, and it’s enough to scare investors into making some drastic changes.

Regardless of who gets elected, however, Warner urges investors to “think long-term” and “not mix politics with investing.” As we’ve noted before, making an investment decision that’s based on emotion, and particularly fear, could lead to loss and regret later on. It’s better to ground decisions in rational thought, or as personal finance guru Carl Richards would put it, to focus on the process and not the outcome.

“Some people might respond by thinking they need to do something different, when in fact, that may be a mistake,” Warner says. “It’s important to remember that while the election will be in the history books, people’s portfolio’s need to last a lifetime.”

The long-term growth of the economy and your earnings will matter more over time.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article provides a good explanation on the risks inherent with owning US Treasuries at this time.

Treasuries & The Retirement Crisis

visit Seeking Alpha to view the complete article

I’m shocked to see how many average individual investors are still clinging to bonds. For many older investors, 50%-plus of their assets are in low-yielding US Treasuries. My jaw hit the floor when I heard this.

The common rationale goes something like this:

“Yes, government bonds provide very low yields but at least my capital is safe.”

Unfortunately, nothing could be further from the truth and this way of thinking is going to lead to a retirement crisis. Let me explain:

1. Income is at risk: First of all, it is wrong to simply dismiss the impact low yields can have on an investor’s portfolio and lifestyle. Today, if an investor wishes to live off coupons from 10-year US Treasuries, he’ll need a $3-million-plus portfolio to generate about $50,000 in annual income. This is simply not realistic, considering the average portfolio size.

2. Capital is at risk: While 30-year Treasuries could rally to a sub-2% yield (perhaps when EU crisis 4.0 hits), the risk-return profile doesn’t justify the opportunity. The ‘rallying room’ - that is the gap between current yields and the theoretical floor of 0% - is the smallest it has been over much of history. So to place so much faith in the continued flight to safety is to make an ill-balanced bet. The upside to yields is far greater than the downside.

True, investors holding US Treasuries to maturity will get their principal back. But you have to remember that when you’re dealing with a super-low yield to maturity the real return is often negative to begin with. Buy-and-hold Treasury investors are facing major headwinds even if yields don’t change.

But someday yields will normalize. That day may not happen in the next couple years, but it could. The markets are unpredictable. Did anyone five years ago forecast that US Treasury yields would be as low as they are today?

If yields continue to drop, Treasuries would rally, but I think investors should save the rate squeezing for the speculators. And that’s okay. In fact, for the more sophisticated Seeking Alpha readers, this might be a viable trade. But it takes a lot of time, effort and intestinal fortitude to profit from the last 100 basis points of a 30-year bond bull market. So be warned.

However, for the average retiree looking to preserve their nest egg, it’s time to dial down the exposure to US Treasuries. This doesn’t necessarily mean reducing the allocation to 0%. But it is imperative that investors evaluate their vulnerability to a single market factor - interest rate risk - and diversify accordingly.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Simply put, your investment risk tolerance is the amount of stress you experience when your account declines. In other words, how do you feel if your account declines five percent? How about 10 percent? What about 20 percent?

If you invest too aggressively for your risk tolerance, then at some level of decline you may reach a breaking point. When that point is hit, many investors feel the need to sell their investments in order to protect themselves. As a result, they make the classic mistake of selling out right at the market bottom just before the market rebounds. This causes them to lock in their losses and miss out on future gains.

The following article discuses what you need to know about your risk tolerance.

The Importance of Understanding Your Investment Risk Tolerance

by Aaron Smith
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It is quite obvious that every person has a unique amount of tolerance to risk both as it relates to investments and things outside of investments. While it is easy to simply blow it off as not very important, the truth is a very thorough knowledge of your investment risk tolerance is absolutely essential to having the right assets in your portfolio.

Risk tolerance as it relates to investments is defined by Investopedia as the degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio. Basically, risk tolerance is understanding how well you would be able to take it if your portfolio loses a large amount of its value. There are some people who have almost no risk tolerance at all, which means that the stock market is certainly not a wise investment for them. Other people have a much larger tolerance for risk because they are simply seeking aggressive growth in the long run, meaning investments in riskier assets such as individual stocks and possible even options may be right for them.

The good news is there are a huge amount of asset types available to investors, so there is no lack of options when it comes to how tolerant you are of risk and what you could buy. The spectrum goes all the way from the safest of the safe, such as things like treasury bonds and certificates of deposit to the riskiest of all, which is widely considered to be individual stocks and especially stock options. Obviously in the safe assets you will earn less over time, but you will also sleep much easier at night.

How can you know what your risk tolerance is? Factor in important things such as how much of a loss you can possibly afford in your personal portfolio, your age, your financial goals, and your emotions. There are some risk tolerance quizzes online which can be very helpful, or you can sit down and talk to a financial advisor or professional who has experience with understanding tolerance of risk.

The most important thing is that you figure out your tolerance for risk BEFORE you start investing your hard earned money. You can’t afford to ignore risk tolerance when putting together your investment portfolio. Those who don’t consider risk tolerance and then go head first into assets such as individual stocks are typically the investors that are hurt the worst. Make yourself an informed investor and make wise investment choices for your portfolio!

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.