Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Crisis Halves Retirement Fund Values

Personal_Finance / Pensions & Retirement Dec 30, 2008 - 10:38 AM GMT

By: Steve_Selengut

Personal_Finance Best Financial Markets Analysis ArticleCrash! The 2007 thru 2008 financial crisis halved 401(k), IRA, and Mutual Fund values in a matter of months. For many, retirement dates had to be pushed back; for others, new jobs had to be found. The tragic flaw? No income allocation in the investment program. Market value builds egos; income pays the bills.


Few employers cautioned Savings Plan participants that 401(k)s are just not defined benefit programs. Few mutual fund distributors suggested to benefit departments that their programs were missing something of critical importance.

Throughout the meltdown, all investment securities fell in market value. But the vast majority of income securities, including closed end income funds (CEFs), have continued to pay interest and dividends. Market value builds over-confidence; income pays the bills.

The Working Capital Model (WCM) is a comprehensive system for investment management that is based on uncompromising rules of engagement. The investor's focus must remain centered on the development of dependable cash flow and the creation of an expanding number of houses and hotels on his game board.

With a reasonable amount of effort, and a lot of self-discipline, anyone can use it to build a portfolio, slowly and sanely, benefiting from the cycles we all expect to continue indefinitely. All cycles have two components; the WCM helps you deal with each.

Every portfolio holding must generate regular income of some kind and each must have profit potential--- at least at the time of purchase. The planned balance between income producers and growth providers (equities) must be maintained throughout the process, even though there may be no immediate need for the income. Have you learned that unrealized gains are not growth?

Year to year, we want to see reasonable growth in both Working Capital (the total cost basis of the cash and securities in the portfolio) and base income (interest and dividend income produced by the securities in the portfolio). But more importantly, we want to produce this growth in a lower-than-usual risk environment, made up of properly diversified investment grade securities.

The first steps in the investment process are Management Functions: Planning, Organizing, Leading, and Controlling

Planning involves the identification/definition of Investment Goals and Objectives. They should be long-term but flexible over time. They should include parameters and rules that are well thought out--- at the personal level. They should be reasonable and realistic historically.

Goals and objectives are essential, but they need to be laid-up on a foundation that reduces the risk of loss at various stages in the life cycle of the investment program. Asset allocation is a planning/organizing tool used to design the portfolio in a way that will balance the need for growth in Working Capital with the age-dependent risk tolerance of the investor.

Asset allocation decisions should implement and support the Investment Plan. Under normal circumstances, the securities in the income "bucket" of the portfolio (bonds, government securities, mortgages, preferred stocks, REITs, etc.) are all much safer than any of those in the equity "bucket".

An asset allocation with 50% in each bucket is much more conservative than one with 80% directed toward equities--- regardless of the quality ratings we require for the equity securities. Asset allocation decisions must be made using the cost basis of the securities in each bucket.

Beyond asset allocation itself, organizing involves selecting actual securities that fit into the two investment buckets in a properly diversified manner. It may involve several separate portfolios, but must be easy to direct and control.
Diversification rules (also based on security cost basis) will guide the portfolio into a variety of issues and sectors.

Proper diversification assures that the overall risk of loss is spread around companies, countries, businesses, and geographical areas. Market capitalization issues, and global representation are dealt with behind the scenes, in the quality determination phase of the security selection process.

Leading, most simply, is personal decision-making. You must direct the activities of others (brokers/managers/accountants/etc.) who may be offering you investment advice. The investment manager (you are the primary investment manager) must create the quality, diversification, and income generation rules (the QDI) that govern the day-to-day operations of all portfolios.

Why would anyone accept a portfolio that was not designed for his or her own unique situation and needs? Laziness, confusion, brainwashing, ignorance of the markets--- all of the above?

The Principles of Investing (the QDI) are superimposed in, on, and around the management functions. They control the security selection process to help reduce portfolio risk. They help set the targets for profit taking and provide mind-set controls that enforce the rules. They assure that every security within the portfolio contributes to base income.

It is imperative that you lead your portfolio into strict guidelines for security quality, cost-based diversification, income generation, and profit taking. Rules for disposing of downgraded or weakening positions must also be codified.

Profit taking is the most satisfying of all portfolio decision-making functions--- and possibly the least popular! Most of the reasons are ego centered, until the WCM shows clearly the opportunities that are available for the newly created working capital.

Reasonable targets must be set (between seven and ten percent dependent on the amount of smart cash available), and triggers pulled insensitively when targets are reached--- no hindsight at all can be tolerated. A monthly brokerage statement with unrealized gains is a sign of poor management.

Controlling involves realistic performance evaluation, and monitoring to assure that you are following your own rules and guidelines. Comparing your annual change in market value with the DJIA or S & P is not performance evaluation.

By Steve Selengut
800-245-0494
http://www.sancoservices.com
http://www.investmentmanagemen tbooks.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

Disclaimer : Anything presented here is simply the opinion of Steve Selengut and should not be construed as anything else. One of the fascinating things about investing is that there are so many differing approaches, theories, and strategies. We encourage you to do your homework.

Steve Selengut Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in