Farm Credit Services Southwest: Notebook: Financial Tips



	Investment Tips *Common-sense portfolio management in the current market environment* Q. Will the stock market recovery last? A. Considering the stock market performance during the last year and the current direction of our economy, the stock market recovery will probably continue for a few more years – but investors should take care not to be overconfident. Q. If I have money “on the sidelines,” is this a good time to invest it in the market? A. I advise investors who are still on the sidelines with cash, CDs and money market accounts to seriously consider entering the market now with at least a portion of their funds. But keep in mind that you take on large risks if you ignore sound principles of diversification and balanced allocation—especially if you are attempting to make up for prior losses. *Q. What do you mean by “diversification” and “balanced allocation”?* A. Portfolio diversification means spreading your investment dollars into multiple investments rather than concentrating in a particular area of investment, such as just stocks or just cash and CDs. A balanced allocation goes even further to identify multiple investments that either perform independently of each other or that perform inversely to each other. This way if an unexpected problem arises in one sector of our economy, only a portion of your portfolio suffers and perhaps another portion prospers. *Q. What are today’s best performing sectors of the securities market and in which sectors should investors use caution?* A. The 2003 performance of “small cap” and “medium cap” stocks has most investors’ attention right now. Most smaller company stocks—and the mutual funds that buy these stocks—have done very well during the past year. Smalland medium-sized companies often outperform other securities during a recovery period. Regarding downside potential in portfolios, investors should use caution now in the management of their bond holdings. These fixedrate investments are exposed to interest rate risk. It is likely that as our economic recovery continues, inflation—or at least the fear of inflation—will return. The Federal Reserve usually manages this situation by influencing a rise in interest rates. The value of existing bonds with long maturities will decrease significantly during this process. Investors should not sell all bond holdings and buy small cap stocks. A better plan is to sell bonds with long maturities and reinvest to shift the mix of your portfolio toward growth style stocks while retaining the diversification and balance we talked about earlier. Monitor your portfolio and be prepared to make future adjustments, but only if significant changes in the economy give reason to do so. *Q. Considering the recent scandals in the mutual fund industry, should the average investor feel safe placing money in the market today?* A. There are many honest, hardworking professionals in the securities industry that serve investors fairly. Unfortunately, some favor very large investors and operate outside regulations and statutes. Recently, some individuals acted inappropriately, and they have been punished. Regarding investor safety, there has always been a strong need for investors and their advisers to “do your homework” and make investment decisions that will best meet the individual objectives of a particular investor and be within that investor’s level of risk tolerance. That need is no greater or no less than it has always been. I believe that the recent “scandals” among certain companies within the mutual fund industry do not render the securities market unsafe for us to participate. To ignore current opportunities because of these events would be unfortunate and unnecessary. *Q. Where does an investor get help in researching how to construct an effective investment plan?* A. The first step is to secure a reputable and competent investment adviser or financial planner. Shop for an adviser just like you would conduct a job interview. Ask prospects for their education, training, experience, licensing and credentials. Check out what they tell you through professional organizations, regulatory agencies (state and federal), licensing entities and the BBB. Ask for references and then call them. An adviser who works for an established and reputable firm provides a certain level of comfort. That is, such a firm would not likely risk its good name by employing a person who might harm their clients financially. Talk to several prospects, ask these questions, consider the responses and follow your instincts. *Q. What kind of investments should I consider for my retirement fund?* A. The answer to that question depends on your age, when you plan to retire and your level of risk tolerance. If you are 35 years old, have 30 years before retirement and are comfortable with reasonable amounts of volatility in the value of your investments, then an aggressive growth allocation is suitable. However, if you are 55 years old, plan to retire soon and are uncomfortable with risk, a portfolio weighted toward stable income producing investments may be a better fit for you. Call Farm Credit If investment planning is something that you have been putting off—or if you’d simply like more information about these and other tools, please give Ken Lassen a call at 800.822.3276 or E-mail Ken at kenyon.lassen@fcssw.com. He's ready to help! monthly newsletter. How can I contribute more to my retirement fund? (SIMPLE-IRA). Alternative Minimum Tax			Tax and Business Alert Newsletter Credit Loan or lease? 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