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Tips for investing in 2012: Look for the long term

Miccolisjerry031910_optBY JERRY A. MICCOLIS
COMMENTARY

2012 is almost upon us and our resounding message is to invest for the long term. It’s a troubling time in terms of geopolitics and global economic change, but be strong in your investment convictions. Below are our recommendations:

Stick to your guns. Research shows that typical investors allow their emotions to rule their financial decisions – letting fear or euphoria prompt them to enter and exit the markets at precisely the wrong times. With market and geopolitical uncertainty continuing to roil equities, it’s more important than ever to stick to your guns, maintaining a well allocated and balanced portfolio that reflects sound investment principals and your long-term needs – not your gut reaction to every market whipsaw.

Beware of investments that prey on investor fears. Investors are looking for the silver bullet that will protect them when markets collapse. Buyer beware: Many investment vehicles that are popular during volatile times are expensive and complex, and sold predicated on fear. While there are quite a few products that offer risk protection, many are limited in the benefits that they provide, and some can have significant adverse effects on portfolios during normal market environments.

Diversify, diversify, diversify. Be diversified in your investments. A proper asset allocation combined with opportunistic rebalancing, to ensure your allocations stay true, continues to be the best way to reduce risk. A well-diversified portfolio that invests across a range of equity sectors, fixed income, and alternative investments is always a good choice. A plethora of mutual funds and exchange-traded funds (ETFs) offer exposure to a wide variety of asset classes.

Invest in equities. Ideally, you should be invested in equities up to your personal risk tolerance level. Remember that you are in it for the long term: Don’t be distracted by the day-to-day news. Additionally, don’t let election-year politics and potential gridlock alter your long-term investment strategy. Focus on the fundamentals, such as corporate earnings. Investing in equities is the best defense against the biggest threat to your financial future — inflation.

Consider investments that incorporate portfolio protection and exploit volatility and risk. One way to combat volatility is by investing in volatility itself. The trick is to invest in volatility in such a way that the investment does not lose its appreciation when markets and volatility return to normal. Other proactive risk management strategies include momentum-based sector rotation. Any risk management product should work in concert with, not in place of, any carefully designed asset allocation.

Read the fine print before purchasing an annuity. Although fixed annuities promise a steady income stream for life, you are paying a hefty cost for the privilege. By locking up a sizable sum of your money until the day you die, you are restricting your ability to use those funds to participate in any future equities rally or other attractive investment. And, an annuity won’t serve you well in the face of inflation.



 

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