Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

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

6 Critical Money Making Rules