Friday, November 30, 2012

To Risk or Not to Risk…


“October is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, March, June, August, December and February”….Mark Twain

All investments carry some type of risk. Today, I am going to focus on risk as it is measured by standard deviation (SD). Go on, keep reading. I hope I can make this an understandable concept!

Let’s use the example of choosing to invest between Product A and Product B. Product A has an expected rate of return of 4% with an SD of 2%. This means that about 2/3* of the time, this investment is expected to return between 2% and 6% (plus or minus 2%).

Product B has an expected return of 10%, but the expected SD is 20%. This means about 2/3 of the time Product B should return -10% to +30%.

In dollars, a $10,000 investment in Product A would be expected to grow in the range of $10,200 to $10,600 (again 2/3 of the time) over a one year time period. Product B’s return would result in a range from $9,000 (a $1000 loss) to $13,000. Product B has a greater reward potential but also greater loss potential than Product A. It is clear that Product B is “riskier.” Note: 1/3 of the time the gains and losses are even greater.

Another consideration to think about: if you had to liquidate your funds to raise money, you may have to sell your investment for less than your original investment. Understanding this concept is very useful in helping you determine what an appropriate investment would be.

The moral of this blog is to make sure you fully understand the risk you are taking before you make an investment. If you have the time and the temperament to take on risk, that is okay. The objective is to have all the facts in order to make the most informed decision.

In my next blog we will discuss the meaning of volatility.

*In statistics, the 68-95-99.7 rule — or three-sigma rule, or empirical rule — states that for a normal distribution, nearly all values lie within 3 standard deviations of the mean. About 68.27% (2/3) of the values lie within 1 standard deviation of the mean. Similarly, about 95.45% of the values lie within 2 standard deviations of the mean. Nearly all (99.73%) of the values lie within 3 standard deviations of the mean.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.



Thursday, November 15, 2012

Road Blocks to Creating Wealth


Do you have a substantial amount in savings, but lack confidence and knowledge when it comes to investing? This blogs for you!

As a Generation X , 90% of Gen X (those born between 1965 – 1982) are saving in their retirement plans at work, but only 15% said they knew they were on track to create the income they would need down the road, when they can’t or don’t want to work full time any more. If you are between 30 and 44, most of you have plenty of time to make a plan and create a way to monitor your progress. If you don’t have an end goal in mind, it is difficult to know if you are on track or not.

I often see young people come into my office that are saving appropriately, but their investment allocation is much too conservative to have their dollars working to help them grow their income account over time.

Have you heard of the “rule of 72”? It is basic financial concept that illustrates how many years it will take to double your money.¹ Let me give you a hypothetical example. Let’s say you are 30 years old, you have saved $50,000 and it’s earning 2%. By the time you are 66, the $50,000 would grow to $100,000 (72 divided by 2=36).

Let’s assume you invested in a diversified portfolio (small, medium, large companies around the world and some bonds in a hypothetical portfolio that we assume you average 7% rate of return. Now, according to the rule of 72, your money doubles about every 10 years. In dollars, you would have accumulated over $500,000 in the same 36 years. This of course is just a hypothetical example. My point is how you diversify your investment may have a huge impact on your future income. It could be the difference of $4,000 per year in retirement vs. $20,000 from the same starting point.

If this makes sense to you but you’re not sure how to apply it to your own personal situation, take the time to meet with an advisor or take a class on investing. Maybe start a group of other like minded friends and do an investment work club and ask an advisor to come in and facilitate to make sure you understand the why’s and how’s of what you’re doing in your 401k and other investments.

¹ 72 is divided by the interest percentage per period to obtain the approximate number of periods required to double the investment.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.



Wednesday, November 7, 2012

Create a Budget – Make a Plan


Are you trying to get your spending under control? Are you in the position that you realize that you need be saving more, but need the basic skills needed to put together a plan to map your future? If this resonates with you, read on…

Many women struggle with money management. First, get rid of any guilt you may feel about what’s happened in the past. You can’t change the past and it’s important to focus on what you can do right now, in the present. I am addressing this blog to a group of our population known as Gen X.

As a generation, the Gen-X’ers (those born between 1965 and 1982) have a propensity to spend more than they earn (40%), and not surprisingly, the majority (60%) don’t even have an emergency fund.

If you are in this or a similar situation, whether you are single or are in a committed relationship, take the time to sit down and really look at your spending patterns.

In order to save you have to pay yourself first, or make yourself one of the line items on your automatic bill pay. If you wait until the end of the month to save what’s leftover, this will never happen.

Analyze what you spend on entertainment, clothes and other discretionary “stuff”. You may be very surprised at how much money is wasted that could help you start a new financial future.

If you are in debt, make a vow to yourself to pay off the debt. Set up a goal and look at it every month. Write it down. I will pay off my debt in xx months. If you are single, find a friend or a trusted colleague to help keep you on track. Remember a goal with no end date is nothing more than a dream.

Don’t procrastinate another day. If you need help or encouragement, send me an email. When I was 34 years old, I was over $40,000 in debt, a single mom, and my income was less than what I owed. It can be done if you are committed to a better future for yourself and your family.

Today I am a successful business owner and have met my goal of being one of our firms tops clients.

If you’ve achieved the enviable goal of being debt free and have accumulated a comfortable savings account, we will address the next steps in my next blog.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.