financialforum Investing Basics
With the stock market on a nonstop rollercoaster ride, many investors are unsure of how to handle their investments. Phil Dyer, CFP, offers some fundamental investing advice.
O
Learn More About Investment Planning
■ For additional invest- ment tools and resour- ces, visit
www.moaa .org/financial and click on Investment Planning.
ver the next several columns, we will be running a “back to ba- sics” series reviewing key areas
of financial planning. This month, we are tackling investing — a challenge for many over the past decade. Consider these three questions to help
get your investment plan back to the basics: What is your time horizon? While this might sound simple, many people don’t consider this fundamental question when evaluating investments. What do you hope to pay for with this money, and when are you going to need it? The approach for money you will need in one to two years varies dramatically from that for money you will not need for a decade or longer. Money market funds and CDs are great short-term parking places but might not make sense for long-term investments. You should have a time frame in mind for every investment you make. What are your investment expenses?
It amazes me how little attention many individual investors pay to their invest- ment expenses, which often can have a significant effect on investment returns, particularly in today’s low-return environ- ment. According to an Investment Com- pany Institute’s report, “Trends in Fees and Expenses of Mutual Funds (2009),” the average fees/expenses are 0.99 percent for stock mutual funds and 0.75 percent for bond mutual funds. However, many mutual fund fees are significantly higher than these aver- ages, creating a real drain on investment
4 6 MI L I T A R Y O F F I C E R O C TO B E R 2 0 1 0
returns. In addition, high-fee funds routinely underperform their lower-fee counterparts and are more likely to be closed down in poor market conditions. Consider the Thrift Savings Plan, which has an expense ratio of less than 0.03 percent, versus an actively managed fund with expenses of 1.25 percent or more. That differential — compounded out
over 15 to 20 years — can mean tens of thousands of dollars in additional savings in your investment accounts. Want to find out what fees you are paying on your mu- tual funds? Check out
www.morningstar .com and register for a free account. What is your current asset mix? Routine
review of your overall asset mix (stocks, bonds, cash, international, and alterna- tive investments) is critical to long-term financial success. Does your current asset mix make sense for your age, time hori- zon, and risk tolerance? If not, make some changes. One mistake many investors make is treating each account as its own separate portfolio and not creating an integrated overall investment plan with a coordinated asset mix. Studies show asset allocation decisions account for 90 percent or more of investment returns, so don’t ignore this critical factor.
MO
— Former Army Capt. Phil Dyer, CFP®, is deputy director, Benefits Information and Finan- cial Education. To find a financial planner near you, contact Garrett Planning Network at (866) MOAA-GPN (662-2476) or
www.moaa .org/garrett, or visit
www.moaa.org/financial center for other resources.
PHOTO: SEAN SHANAHAN
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96