Thursday, August 9, 2007
In my last comment, I indicated that I would discuss asset allocation relative to the purpose of the portfolio.
In light of the recent volatility in the market I am going to postpone that article.
At this time I would like to take a stab at what is happening in the financial markets and what should you do.
Rule number one- breathe deeply because you have followed intelligent asset allocation. The money that you have invested in the stock market should be money that you are not going to spend for next five years.
If you have placed the money you need to live on for the next five years in the stock market, you have made a tremendous error. I suggest you withdraw whatever you need to pay your day to day expenses over the next five years. You should put what you need for the next 12 months in a money market. If your tax bracket is high invest what you need for next year in a one year tax free insured zero coupon municipal bond. Place what you need in year two in a two year zero coupon tax free insured municipal bond. Do the same in a three year and four year tax free insured zero coupon municipal bond.
If your tax bracket is low buy U.S. Government zero coupon bonds instead of tax free insured municipal bonds. You may want to calculate the tax equivalent yield of your tax free bond and compare it to the taxable yield of the U.S. Government zero coupon bonds.
If you are making these investments in an IRA (Individual Retirement Account) or other type of tax differed account, you should only purchase U.S. Government bonds or U.S. Government guaranteed instruments. Never purchase a tax free investment in a tax differed account because you do not get the benefits of the tax free investment in a tax differed account. Tax free investments normally pay less because of their tax free status.
If you are professional, investing funds for other individuals, hopefully you are already following the above mentioned guidelines. Never place money that is going to be used within the next five years in the stock market.
The fear that is running rampant in the financial markets these days is primarily a concern for professionals that have made huge bets on the wrong side of the sub-prime lending market.
If you have not participated in over borrowing (over leverage) and you are financially clean, you are in a great position. If you have money that you have been waiting to put to work in the Global stock markets, now is the time to do it!!
You can still pick up high quality U.S. Companies at or below values they were trading at seven years ago!!! Is there anything else in this world that has value and produces profits that can purchased at close the price it was seven years ago? Absolutely not except for some of the best run money generators in the world. Buy quality companies now!! Buy the portfolios recommended on this website with money that you will need five years and beyond from now. You will achieve some amazing returns on your investments!!
You may email me with your comments or questions at Dave@davesfavs.com
Have a fantastic prosperous Day,
Gain the fulll benefit from
a DavesFavs subscription.