Investing Trick or Treat: What Works What Doesn’t

  Every time you turn around there is another investing rule. You cannot turn on the car radio without some self-styled expert pontificating about why managed accounts are better than buying no-loads or Roth IRA conversions make sense or buying mutual fund 529 plans is smart college planning. A body just wants to tear their hair out whenever every Tom, Dick & Suzie is tossing in their two bits on what you should do with your money. Okay so here are a few of mine. You can embrace or reject and you won’t hurt my feelings.

• There are worse things than paying taxes. Don’t sweat the possible increase on dividend taxes- you probably won’t even notice the difference. Chasing tax efficient investments is usually a waste of time for most of us.
• Rebalancing is simply selling high and buying low. It’s dumb. Warren Buffett holds winners and sells losers and so should you. (Don’t believe me? Check the S&P 500 index for the past decade versus the long-term bond index. Bonds posted an average annual return of 8.70% while the S&P 500 index lost o.54% per year.) How would rebalancing work with stocks and a bond allocation? Rather than compounding your winners you’d be minimizing your upside while feeding the loser. Like I said – dumb.
• Dollar cost averaging is a great way to get costs down as long as you do it with mutual funds and not stocks. It’s the one rule every investor should tape to the mirror or computer and read every day.
• Forget 529 plans for college education savings and buy the state of Michigan guaranteed plan. It’s called Michigan Education Trust. Don’t live in Michigan, lots of states have similar plans. No matter what happens you’ll guarantee the kid’s education. College costs escalate at double digit rates and no investment can keep up. Buying a 529 and investing in guaranteed dollars is just tossing money away.
• Not everyone needs a Trust to complete their estate plan. Simply designate beneficiaries on any account. It saves money and is just as efficient. What you should have is a Will along with Power of Attorney. There are lots of exceptions and you should talk to your advisor.
• Buying stocks and think you missed the boat on that one special company? Check the stock chart and see if and where it gapped in price. The stock usually comes back to fill that gap – sooner and sometimes later.
• Buy long-term care insurance. Cannot afford the full coverage than buy partial because something is always better then nothing.
• Don’t buy or invest in anything you don’t understand or cannot explain to someone else and have them understand what you said.
• Don’t invest with someone you don’t know or simply calls you on the phone from out of town.
• Ask what the ‘advisor’ is buying and if not what he or she is recommending find out why. 
• Naturally, my favorite is just keep things simple. The less moving parts the less chance of something going awry. (I dislike things going awry!)

Questions call Paul @ 586 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.