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Asset Allocation - Does it still work?

Asset Allocation - Does it still work?

The gyrations in financial markets over the past decade have, for many, created the sense that diversification, as an investment concept is no longer useful. Had you invested $1,000,000 in a diversified basket of stocks, like the S&P 500 at the beginning of 2000 and held for the ten years ending in 2009, you would have been left with $908,832. The impact of inflation would have reduced the purchasing power to approximately $726,000, or a real decline of almost 25%. This result is further devastating to the individual who might have been trying to live off of their investment portfolio.If annual distributions of $50,000 had been taken from the original $1,000,000 invested in the S&P 500, only $377,882 would have remained by the end of the period!

This very tumultuous decade drove many to abandon the idea of diversification and securities markets altogether in exchange for low yielding “safer” alternatives like CDs and government bonds. The problem with this way of thinking is that diversification isn’t simply owning a basket of different kinds of stocks, but rather different asset classes. By incorporating different types of assets like bonds, commodities, and stocks the end result would have been much better.

For example, had you taken the same $1,000,000 and invested it equally between bonds, commodities and stocks over the ten-year period beginning in 2000 and holding through 2009, you would have ended up with $1,735,027.* After the impact of inflation, you would have had the equivalent of $1,388,021 in purchasing power or an increase of almost 40%. With annual distributions of $50,000 you would have finished the decade with $1,091,048 or $92,048 more than the original principal. Thus, even in an environment that many consider to be the worst since the Great Depression, proper diversification still proved to be a successful tool in growing your assets and protecting your portfolio against the effects of inflation.

Although many experts and advisors understand the benefits of diversification, too many are quick to abandon this and other time-tested strategies when they see the potential for higher possible returns that riskier, more concentrated investment strategies can provide. The problem with these types of higher return strategies is that they invariably have lower probabilities of success and often have tragic results when they fail. Our research also indicates that even over long periods of time, the additional risk taken may only generate small, incremental units of return.

At MutualWealth, we continue to focus on diversification as a valuable tool that can give our clients peace of mind during even the most challenging of financial environments. As always, we are appreciative of your confidence in our capabilities and look forward to serving you well into the future.

Shayne Nagy, CTFA
Senior Vice President
Trust and Investments 

* As represented by Barclays Aggregate Bond Index, Goldman Sachs Commodities Index and S&P 500.


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Personal Social Media Account Security

For many of us, social media has become a part of our everyday lives and helps us conveniently keep tabs on the people and topics we care most about.

Recently however, there has been an increase of social media account take overs by cybercriminals. As stated in the media, one contributing factor in some of the social media account takeovers has been the use of weak passwords.


Tips for creating a stronger password:


  • Passwords should typically:
    • be at least 8 characters in length
    • contain at least 1 number
    • contain at least 1 special character (!@#$$%)
    • contain both upper and lower case characters.
  • Do not use your name, date of birth, maiden name, mother’s maiden name, address, or other easily guessable words for passwords. 
  • Another way to create a strong password is to use a series of words that do not relate to each other. For example, JumpingFastRelaxStop!#.

 


Social media additional security options:


Another way to help avoid social media account takeover is to use the additional security options available. Two-factor authentication adds an extra layer of security that drastically decreases your chances of account takeover. Two-factor authentication is essentially the using of two separate components to verify your identity, the combination of something you HAVE with something you KNOW. A good example of two-factor authentication you most likely are already used to is withdrawing cash from an ATM, for example. Having both your debit card AND knowing a pin number is required to complete the withdrawal and protect your identity.

A popular and convenient two-factor authentication method is using a combination of both an online password and a text message verification sent to your phone. Enabling this type of authentication typically follows this process:

  1. Enter your password into Facebook or another website
  2. Immediately receive a text on your phone with a temporary pass key
  3. Enter the passkey received back on the site/app and you’re logged in

This may seem like overkill, but enabling this two-factor authentication will drastically decrease the chances of your social accounts being hacked. And actually, the process of setting up and using this authentication is pretty simple and convenient.

 


How to enable two-factor authentication:


Many popular social networks like Facebook, Twitter, LinkedIN, and others already support two-factor authentication. To learn more about how to do so on the most popular sites on the web, be sure to check out this article:

http://socialcustomer.com/2014/04/how-to-enable-two-factor-authentication-on-50-top-websites-including-facebook-twitter-and-others.html

Wednesday, April 22, 2015

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Asset Allocation - Does it still work?

Asset Allocation - Does it still work?

The gyrations in financial markets over the past decade have, for many, created the sense that diversification, as an investment concept is no longer useful. Had you invested $1,000,000 in a diversified basket of stocks, like the S&P 500 at the beginning of 2000 and held for the ten years ending in 2009, you would have been left with $908,832. The impact of inflation would have reduced the purchasing power to approximately $726,000, or a real decline of almost 25%. This result is further devastating to the individual who might have been trying to live off of their investment portfolio.If annual distributions of $50,000 had been taken from the original $1,000,000 invested in the S&P 500, only $377,882 would have remained by the end of the period!

This very tumultuous decade drove many to abandon the idea of diversification and securities markets altogether in exchange for low yielding “safer” alternatives like CDs and government bonds. The problem with this way of thinking is that diversification isn’t simply owning a basket of different kinds of stocks, but rather different asset classes. By incorporating different types of assets like bonds, commodities, and stocks the end result would have been much better.

For example, had you taken the same $1,000,000 and invested it equally between bonds, commodities and stocks over the ten-year period beginning in 2000 and holding through 2009, you would have ended up with $1,735,027.* After the impact of inflation, you would have had the equivalent of $1,388,021 in purchasing power or an increase of almost 40%. With annual distributions of $50,000 you would have finished the decade with $1,091,048 or $92,048 more than the original principal. Thus, even in an environment that many consider to be the worst since the Great Depression, proper diversification still proved to be a successful tool in growing your assets and protecting your portfolio against the effects of inflation.

Although many experts and advisors understand the benefits of diversification, too many are quick to abandon this and other time-tested strategies when they see the potential for higher possible returns that riskier, more concentrated investment strategies can provide. The problem with these types of higher return strategies is that they invariably have lower probabilities of success and often have tragic results when they fail. Our research also indicates that even over long periods of time, the additional risk taken may only generate small, incremental units of return.

At MutualWealth, we continue to focus on diversification as a valuable tool that can give our clients peace of mind during even the most challenging of financial environments. As always, we are appreciative of your confidence in our capabilities and look forward to serving you well into the future.

Shayne Nagy, CTFA
Senior Vice President
Trust and Investments 

* As represented by Barclays Aggregate Bond Index, Goldman Sachs Commodities Index and S&P 500.


Contact a Representative Today

Back to Education Resources

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