Investment Opportunities and Beyond

Investment Opportunities and Beyond

A new year is a good time to look back at investment themes to find out what worked (and what didn’t work) over the last year. It’s good to consider not only the one year, but themes that worked over several time periods.

Looking back at 2011, we saw a lot of common themes work that market-based advisors like myself have been preaching for years.

Diversify over stocks, bonds, and real assets. Fund companies like Vanguard and Dimensional Fund Advisors (DFA) introduced new, low-cost ways to diversify into commodities and more types of foreign securities. Vanguard and DFA made a move into foreign bond funds, and Vanguard recently announced the addition of small companies to the international index fund.

Gold continued its outsized gains, Silver added moderate returns, and many other real assets pulled back. Diversification should not only cover stocks and bonds, but should also include considerations for subasset classes like international small cap and real assets.

Know what you (and your fund manager) own. Many investors just look at the category rating in order to select their investments. With the continued issues with investing firms, most notably MF Global, it’s important to not only know what the investment performance of your manager is, but also what they own. Many funds juice returns with derivatives and high-risk assets that can come back to bite you if you’re not aware of what you own. Others have added positions to gold and other investments that are outside of the normal investment category; these positions can be costly to pay a manager to hold, especially if you didn’t intend for that manager to buy them.

Active management wasn’t necessary. Through December 22, the S P; 500 is having a phenomenal year, other market indexes are pulling their weight. Meanwhile, the story on market gurus throughout the year has been one of traditional gurus being at the bottom of the pack. CGM Focus, Fairholme Fund, and PIMCO Total Return were three funds investors have poured money into in recent years, only to their detriment. Jumping from one hot fund managers to the next was simply not worth the cost or effort. When it comes to Kapitalanlage, it is wise to choose the right platform to put your money in. There are also several factors that you have to carefully consider. Doing your own research is advisable so you can educate yourself.

Get out of gimmicks. Those that sought to protect their retirements with annuities saw in 2011 that their products were not as guaranteed as the sales pitch claims. Variable annuities took away options to diversify and increased fees; equity-indexed annuities (those sold with a feature to participate in the market) reduced their payments. Insurers in both categories left the business; this alone should reveal those with these products have a much higher risk than they believe.

The best actions an investor can take are to consider your mix, consider if it’s diversified, if you know what you own and why you own it, and if your costs are reasonable.