Fast 5: Financial Facts for February 2017

March 3, 2017
VMD Staff

How much do you know about the buy-and-hold investing strategy, fixed-income options for retirement, asset-protection strategies, and cognitive bias in stock portfolios? Catch up with some of this month’s financial advice.

Sometimes what’s old is still new. The classic investment strategy of buy-and-hold—assembling a diversified stock portfolio and then leaving it alone for years—just needed some freshening up to be modern again.

The classic buy-and-hold strategy, which builds wealth over time and minimizes exposure to market volatility, was to buy shares in a core group of companies and hold them for 10 to 15 years. What experts recommend today is that you also purchase a group of satellite stocks that revolve around the core group and are changed more frequently.

Fixed-Income Investments

These include more than just bonds. When looking for fixed-income investments to fund your retirement, consider fixed-rate annuities. You get a set rate of interest for a set time period—usually 3 to 10 years.

Unlike bonds, annuities are not subject to rate fluctuation. The insurance company bears all the underlying investment risk, protecting you from market volatility.

The Right Time to Plan for Asset Protection

The right time to come up with your asset-protection strategy was yesterday. Things happen, and it is always important to be prepared—especially when it comes to your money. State laws vary, so you’ll want to check with your accountant or financial planner, but there are 3 basic asset-protection structures.

  • Retirement account: This is the easiest and most tax-advantaged way to shield your assets from creditors.
  • Domestic asset-protection trust: In 16 states, anyone can set one up, even nonresidents.
  • Annuities and life insurance: Did we mention annuities?

Each of these vehicles will allow you to shield assets from creditors, with the limit dependent on the rules of the state in which you live and practice.

Don’t Mess Up Your Own Portfolio

Conditions in the market inevitably swing up and down. We usually think these conditions are here to stay, but that is never the case. We’re all prone to pay undue attention to recent news (good and bad) and underemphasize long-term trends. Market performance in the recent past provides the least useful information about an investment. And recent performance data—while typically easy to understand and dramatic—are not necessarily accurate.