I have been thinking about our conversation regarding the investment philosophy to help your mother. Asset allocation decisions are probably more difficult now than they have ever been in our industry. We deal with many clients in your mother’s situation, where they really don’t need the income and the capital is most likely going to be passed on to the next generation. Finding the proper balance with interest rates near all-time historic lows is not an easy task.
Some of the traditional thoughts about age and asset allocation may not be as relevant in the current environment. As we discussed, fixed income based mutual funds in particular will be negatively impacted when rates eventually start to rise. Having a low duration in the bonds …show more content…
based, high quality companies. The general international market has under-performed the US markets over the last five, ten and twenty years. This situation has also continued, last quarter the international markets had their worst quarter in four years. Most large U.S. companies have significant international exposure. So by having indexes that own these companies, you are still participating. There are many studies that indicate that over the long-term, specifically owning international companies does not enhance your returns, as compared with multi-national U.S. based ones. We also feel that the current environment and the increased volatility in the international markets are not necessarily the best choice to meet the needs of your mother or potential …show more content…
When interest rates start to rise and bonds decline we would reallocate more of your mother’s investment capital to bonds. This may take several years and during this period your mother will be receiving a growing stream of dividend income from the indexes. Your mother will also enjoy greater diversification that broad based indexes provide compared to individual stocks.
We also recommended that we take a more active and directed approach to managing your mother finances. This included utilizing sector based, low cost indexes that can be easily changed with adjustments in the economy and the investment environment. We have utilized this highly successful strategy to help over-weight growth sectors during growth periods and to over-weight defensive sectors during periods of economic slow-down or recession. Recently the markets have been extremely volatile. Owning sectors that are less economically sensitive can help dampen this.
We also have focused on tax minimization strategies. With your help we have reviewed and added all of the cost basis information on assets that were not held at Merrill Lynch. Our recommendations for changes for your mother were done with a primary focus on investment improvement but also with a secondary goal of minimizing
Some of the traditional thoughts about age and asset allocation may not be as relevant in the current environment. As we discussed, fixed income based mutual funds in particular will be negatively impacted when rates eventually start to rise. Having a low duration in the bonds …show more content…
based, high quality companies. The general international market has under-performed the US markets over the last five, ten and twenty years. This situation has also continued, last quarter the international markets had their worst quarter in four years. Most large U.S. companies have significant international exposure. So by having indexes that own these companies, you are still participating. There are many studies that indicate that over the long-term, specifically owning international companies does not enhance your returns, as compared with multi-national U.S. based ones. We also feel that the current environment and the increased volatility in the international markets are not necessarily the best choice to meet the needs of your mother or potential …show more content…
When interest rates start to rise and bonds decline we would reallocate more of your mother’s investment capital to bonds. This may take several years and during this period your mother will be receiving a growing stream of dividend income from the indexes. Your mother will also enjoy greater diversification that broad based indexes provide compared to individual stocks.
We also recommended that we take a more active and directed approach to managing your mother finances. This included utilizing sector based, low cost indexes that can be easily changed with adjustments in the economy and the investment environment. We have utilized this highly successful strategy to help over-weight growth sectors during growth periods and to over-weight defensive sectors during periods of economic slow-down or recession. Recently the markets have been extremely volatile. Owning sectors that are less economically sensitive can help dampen this.
We also have focused on tax minimization strategies. With your help we have reviewed and added all of the cost basis information on assets that were not held at Merrill Lynch. Our recommendations for changes for your mother were done with a primary focus on investment improvement but also with a secondary goal of minimizing