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George Divel Investment Tip #10

Don’t Panic

With real estate values plummeting and prices of commodities from gasoline to food steadily increasing, there is the danger that investors will panic. This is never a good idea. Nobody can predict the future, but unless you really believe that the world is coming to an end, the best strategy for investors is to make the most of the current investment environment. Here are some ideas:

1. Learn from the mistakes of others. Greed and excess categorize the recent housing debacle. Remember that whenever a situation occurs where 1+1 =3, learn to be skeptical. If the investment banks and mortgage bankers had done this, the devasation would have been avoided.

2. Control your debt. Don’t take on more debt than you can comfortably handle. Debt is great when markets are booming, but can be deadly when values fall. If you borrow a million dollars to buy a house and the value of the house drops to half — you still owe what you borrowed. The same idea works in other markets, no matter how great the potential of a stock, it may not make up for the dangers of buying that stock with margin (borrowed money.)

3. This is the most important rule of all. If you have suffered setbacks in the real estate, stock or bond markets, don’t try to make up your losses all at once. Just as most gamblers who keep doubling their bets to get even rarely succeed, so it is with other markets as well.

The best thing you can do is to choose quality investments with the knowledge that excesses in markets usually even out long term.

With the stock markets currently depressed, many great companies are selling for much less than they were a few years ago. If you don’t panic and keep focused on true value, this could be a good time to add profitable long term investments to your portfolio. Talk to your investment advisor for advice.

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April 23, 2008 Posted by | Uncategorized | Leave a comment

George Divel Investment tip #9

Reasons to Re-Balance Your Portfolio

Many advisors recommed rebalancing one’s portfolio on a regular basis. But what about the argument that rebalancing really means taking winnings out of your investments that have done the best and putting them into those that have done the worst. Does this really make sense?

Actually it does, for two good reasons.

First, rebalancing really mean “buy low, sell high.” When an asset class rises in value, you trim it back (selling some high) to beef up your holdings in other asset classes. It’s a mechanical discipline, like dollar-cost averaging, that over a lifetime tilts the odds in your favor.

Second, rebalancing works best when referring to asset classes not individual stocks. With stocks, a good rule of thumb – or at least a rule of thumb to consider, especially in a taxable account – is to “cut your losses and let your winners ride.” With asset classes . . . like “U.S. Equities” or “International Equities” or “Cash” or “Long-Term Bonds” or “Real Estate Investment Trusts” or “Commodity Funds” . . . it’s unlikely that the relative advantage of one asset class will just keep gapping ever wider for decades relative to the others.

So just as dollar cost avering (investing a fixed amount on a fixed schedule, regardless of the market price) is a good overall investment strategy…. so is periodically balancing your portfolio to adhere to your overall financial plan for asset class diversification.

Of course, your investment goals change with your personal situation and time line. Make sure that your portfolio is keeping pace with your goals by consulting with your financial advisor regularly.

April 23, 2008 Posted by | Uncategorized | Leave a comment