|
 INSIDE
FINANCE
The Long & Short Of It
By Robert M. Jaffe, MBA, AAMS
November 18, 2005
In my last column I stressed that
"the main thing to keep in mind is that a well conceived investment
strategy is one that will let you sleep at night and wake up with
your portfolio working for you." That may be easier said than
done in today's market environment, but, with sound advice and some
"homework" on your part, you can do it.
For starters, determine your time horizon. How
long do you have to accumulate your investments before having to
dip into them? For example - if you're 55 years old and plan on
retiring at age 65, the math is obvious….you have 10 years
to build up your investment assets. Follow a strategy with which
you're comfortable and is designed to meet your goals and be willing
to stick with it.
So…let's assume your portfolio on December
31, 1994 was $100,000 invested in the unmanaged S&P 500 Composite
Index. If, over the past 10 years ending December 31, 2004 you had
remained in the market all 2,519 trading days, your investment would
have more than doubled to $263,880. On the other hand, had you gotten
the jitters and pulled out missing 10 of the best market trading
days, your portfolio's value would have been $164,510, nearly 40%
less than had you stuck with it. If you think that's bad, just imagine
if you had missed 20 of the best market days during those 10 years.
Your portfolio would have been worth only $113,350, a profit of
just 13.4% or 1.34% per year on an annualized basis. And, if you
were so jumpy that you missed the 30 best market days in 10 years,
you would have had a loss of $18,660, ending up with a portfolio
value of $81,340. (Figures are based upon the S&P 500, excluding
dividends.)
OK, that's a pretty dramatic illustration of why
investors usually end up on the short end of the stick. Timing the
market is neither for the faint of heart nor the investor without
a crystal ball. That is why I believe in an investment philosophy
that entails broad diversification of assets and holding fast to
a somewhat market neutral strategy over time. Of course, that strategy
must dovetail with both your needs in terms of how long the portfolio
must last once you must dip into it and also changes may be taking
place in the global markets. For instance, in today's environment
of rising interest rates, I would not recommend long-term bonds.
The variables are many and complex, so now would
be a good time to talk with your investment advisor as the year
winds down to determine if changes in your life require changes
in your portfolio.
Please Email bob@cfsias.com
with your questions.
Other Finance
Archive Articles
INSIDE FINANCE
will appear regularly, addressing financial matters of interest
to our readers. Any questions? Email bob@cfsias.com
Registered Representative,
Securities offered through Cambridge Investment Research, Inc.,
a Broker/Dealer, Member NASD/SIPC. Cambridge and CFS are not affiliated.
The preceding
article is for informational purposes only and should not be used
as the primary basis for an investment decision. Indices
mentioned are unmanaged and cannot be invested into directly. Past
performance does not guarantee future results. All examples given
are hypothetical and do not reflect actual investments. The views
expressed in this article are those of the author and are not necessarily
those of Cambridge. Bob Jaffe is Managing Director of CFS Investment
Advisory Services, LLC in Totowa and has been a Clifton resident
since 1984. Active in community affairs, Bob is Past Board Chairman
of the North Jersey Regional Chamber of Commerce and a member of
its foundation board. He serves as a commissioner on the Clifton
Rent Leveling Board and the Committee for Individuals with Disabilities.
He is Vice President of the Clifton Rotary Club. Representatives
of Cambridge do not offer tax or legal advice. Consult a professional
for your personal situation.
|
