Quarterly Client Newsletter
Don’t Panic!
By: Grant Hopkins, Financial Analyst, December 2008
If you’re like many of us, you cringed the last time you took a look at your personal stock portfolio. Every major stock exchange worldwide is down at least 30% in 2008 (many are down more). Huge volatility in prices has caused many investors to flee, a big mistake in our opinion. If you sell at these levels, you’re locking in a big loss and not giving stocks a chance to recover. Unless you absolutely need the money, we suggest you leave your current portfolio alone and instead focus on how you can best invest in today’s markets.
There are two key strategies we recommend: diversification and dollar-cost averaging. Diversification means that you don’t put all your eggs into one basket. Your investment adviser can help you create a strategically-allocated portfolio of stocks, bonds, cash, and other assets that are diversified both geographically and industry-wise. Diversification helps protect you against a meltdown in any one asset class, country, or industry. Statistically, diversification is a proven way to increase your expected returns while also minimizing the risk in your portfolio.
The other investment strategy we advocate is dollar-cost averaging. Also referred to as a “constant dollar plan”, dollar-cost averaging is the process of investing a fixed amount on a regular schedule. Dollar-cost averaging is important because it reduces the risks associated with trying to “time the market”. This method not only insures that you don’t miss opportunities near the bottom of the market, but that you purchase the greatest number of shares at that time. Since you’re investing a fixed amount, when prices are low you’ll buy more shares and when prices are high you’ll buy fewer shares.
If you can set aside your current portfolio and let it recover, you may be able to book some gains down the road by diversifying and dollar-cost averaging today. The big drops in stock markets this year have created multiple opportunities to buy first-rate companies at bargain prices. Dollar-cost averaging will help you do this, while diversifying your portfolio might help protect you the next time we go through this kind of market.
The Holiday Season Doesn’t Mean Reaching The Limit On Your Credit Card
By: Carla Seely, Portfolio Relationship Manager Dec 2008.
The holiday season is upon us, and with it comes one of the most difficult times to stick to a budget. It is so easy to go overboard on gifts for those you love. There is always some cute, cheap item that is just perfect, but when you find things like that over and over, they really add up.
You do not have to go overboard with gifts to have a wonderful holiday season. A little planning goes a long way toward easing the financial strain that so many feel at this time of year. Getting creative with holiday presents not only saves money it makes, the gifts more meaningful.
The main cause of overspending during the holiday season is failure to set a budget. Forty percent of people do not get around to doing this. It is important to work out how much you can afford to spend over the festive season before you leave the house. Make a list detailing who you want to buy gifts for, what you’d like to buy them and how much you will spend. If you’ve already thought in advance about how much you have to spend, and what your money needs to cover, you are less likely to bust your budget. It certainly pays to be thorough and cover every eventuality. Twenty percent of us forget to factor in additional costs such as food, decorations and holiday parties into our budget.
Using your credit card during the holiday season is probably the most dangerous of all mistakes. You may be tempted by the idea of potentially getting cash back on the Cash Dividend Credit Cards, or adding extra miles to your Frequent Flyer Credit Card. The justification is there in your mind, but the reality is if you don’t pay off the balance by the due date you are going to be subjected to the credit card interest! Most credit card companies charge between 17% to 30% PA on balances that are not paid in full, and compound that interest month over month if you don’t pay it off.
Here’s a hypothetical credit card scenario
Let's say you run up a debt of $8,000.
- Your January bill will show a minimum payment of $240. If you stick to this monthly amount at 18.9% interest, it will take you 4 years to pay off the debt.
- During that period, you will pay $3,461 in interest charges, bringing your total to $11,461!
Don’t leave your shopping until the last minute when you’re more likely to panic buy and spend more than you intended. In the last few days before Christmas, the hunt for the perfect gift can turn normal, rational people into blathering wrecks who spend far more than they can afford. However given the current economic conditions many retail stores are discounting heavily to attract clients.
Agree a fixed amount with family members and friends as to how much you will spend on one another. It may sound boring but it should quash the compulsion to try and outdo one another. Buy a family present rather than individual gift. Given rising costs, you might even agree not to buy presents for each other, especially for the extended family. Another idea popular with larger families would be to place every family member’s name into a hat, and then each member draws a single name and buys a gift for just that person.
10 Tips for a Pocket Friendly Holiday Season
- Set a budget. Sit down and determine how much money you can afford to spend.
- Make a gift list. Create two lists: family, and friends. See which ones you would like to give a gift to, and which ones can benefit from a simple yet sincere Christmas card.
- Determine an amount for gifts; set aside a total amount and do not go over this limit.
- Do not wait until the last minute to shop.
- Only buy sale items. Always check out flyers in the mail for bargains.
- Buy supplies in bulk. Go basic with wrapping paper, tape and maybe a ribbon.
- Go homemade. Give gifts a personal touch by making them yourself. You can do scrapbooks or even cookies from your kitchen.
- Consider giving group gifts.
- Pay cash and do not take your credit card out for holiday shopping.
- Always remember the saying “It is the thought that counts”.
Shopping during the holiday period is stressful for many. We often think that to express our love for family and friends it needs to be displayed with the amount we spend. The reality is the holiday season stretches almost everyone’s finances. Careful planning and budgeting can benefit you in the long term.
If you have questions about your LOM account or would like to open an Investment Savings account and create a financial plan, please do not hesitate to contact an Investment Savings Plan Representative at 441-296-7283.
