What I'm Telling My Clients Now

A top advisor scopes out the contours of the impending market bottom, then reviews implications for the range of client-types he advises. Check his approach against your own. And tell us what you think.

Barring any near-term recoveries, 2008 will likely go down as one of the worst years for stocks, domestic and foreign, since the Great Depression. Unfortunately, the other asset classes—real estate, commodities, and even many bonds—have also performed poorly. None of this is news to our clients. The question is what do we as advisors do now, given the near-term uncertainty around when the market will bottom out.

Much depends on each individual client's financial situation and emotional constitution, of course. But here's what I'm telling my clients now.

Gaining perspective
The longest recession since World War II has been about 16 months. Assuming the present recession started early in 2008 and it matches or slightly exceeds the longest postwar recession, it might be late spring to late fall 2009 before economic recovery begins. Since a stock market rebound typically precedes economic recovery, the market could rebound before then; historically, it's turned up 60% of the way through a recession.

While it would be reassuring if we were at or near the bottom, we recognize the strong possibility that declines could worsen. The recent stock market swoon likely anticipated a significant drop in corporate earnings. But when revised earnings estimates and actual earnings reports come out over the next month or two, there may be further equity declines with these negative reports. Also, we know it's as normal for the stock market to overshoot on the downside as it does on the upside.

While no one knows for sure if we are getting close to a bottom, some of the more noteworthy market experts are beginning to see buying opportunities.

Bullish Buffett. The billionaire chairman of Berkshire Hathaway, Warren Buffett, has already started buying American stocks that he thinks are undervalued. In a New York Times op-ed piece on Oct. 17, he wrote that, "Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: 'I skate to where the puck is going to be, not to where it has been.'"

Of course, even the Oracle of Omaha can be wrong—or at least ahead of the curve.
Looking-Up Leuthold. Steve Leuthold, the usually bearish investment manager for the Leuthold Group, was recently interviewed by Barron's magazine. His firm looks at 28 different factors including price-to-earnings (P/E) and price-to-sales ratios, and they are quite positive, in his opinion. He notes that the P/E ratio is in the 15th percentile over the past 55 years, and that has been where markets have often bottomed out. He believes that on a valuation basis the market is cheap. He likes both domestic and non-domestic stocks.

Going-Global Grantham. Jeremy Grantham of the investment firm GMO is convinced that by October 10, global equities were as cheap on an absolute basis and cheaper overall than at any time in 20 years. In his two-part quarterly report, Grantham explained that while foreign stocks are even cheaper than domestic stocks, American equities were also cheap when the S&P 500 was at 900. Recently, the S&P dropped as low as 818. Lest you get too excited, he acknowledges that markets tend to overreact both on the upside and the downside. Thus, while the S&P might look cheap at 900, he thinks it could go lower. It's noteworthy that he is buying even though he thinks the market could go down significantly further in the short term.

Changing economic reality
In addition to market expectations, Grantham's quarterly report offered a number of predictions about the economy over the next few years. He believes that as we unwind from indebtedness, the economy will look more like it did 30 years ago, when people actually "waited until they saved some money before buying a new TV set."
As individuals and companies reduce debt over the next 10 years, the economy will experience further downturns in spending, which will depress prices—both in real and financial assets. "Topping off all the off-setting virtues of this ugly last year is the arrival of cheap assets," Grantham writes. He concludes that the S&P 500 will likely bottom out in the 600-to-800 range. If so, conditions may get worse before they get better. However, he is not trying to time the bottom, but rather is looking at this as the beginning of an opportunity to buy assets at attractive prices.

So what does this all mean to clients?

We can't lose sight of clients' time horizons and investment needs as we assess all this market-related analysis. With that in mind, University of Chicago professor John H. Cochrane, in a Wall Street Journal article entitled "Is Now the Time to Buy Stocks?," offered sage advice:
"If you're less leveraged, less affected by recessions, and have a longer time horizon than average, it makes sense to buy. If you're more leveraged (i.e., indebted), more affected by recession, or have a shorter horizon, it might be time to sell—even if you might be cashing out at the bottom. If you're about the same as everyone else, do nothing and relax." Easy for an academic to say.

Reassuring clients
Mark Berg, a financial planner in the Midwest, described the impact of this recent market trauma on his clients. Approximately 20% see this decline as a buying opportunity and agree with Warren Buffett's timeless advice to "be fearful when others are greedy and be greedy when others are fearful." But another 20% of his clients are terrified. These are the people who are retired or near retirement. Most of these clients simply wanted to hear a voice of reason that counters the doom and gloom of the media.
At my firm, Covenant Wealth Advisors, we have called all of our clients. A small percentage are frightened, many are anxious, and a few see this as a buying opportunity. Just as Professor Cochrane described different paths for different clients, we are helping our clients look carefully at their specific situation.

Are they retired?
Are their jobs secure?
Do they have any major upcoming expenses that can't be deferred?

While we don't expect most clients to relax, we do advocate patience, as tough as that can be during this time. Like most advisors, we consider "staying power" when developing an investment strategy. Before people should commit any money to the stock market, they need to have adequate reserves set aside for emergencies and financial commitments. The ideal investment time horizon should really be seven to 10 years. Or even better, the rest of a client's life.

If the client's financial situation is secure, we then turn to his or her emotional comfort levels, asking the following:
Has this downturn made you realize you aren't as risk tolerant as you thought?
If so, should you change your portfolio mix now?
Generally, if clients can wait financially and emotionally, we suggest not making any drastic changes.

What we're doing now
For many clients, we will temporarily hold off on further rebalancing. Thus, a 50/50 stocks-to-bonds portfolio that may have drifted to 45/55 or 40/60 due to stock declines will be left as is, effectively making it a little more conservative for now. For more aggressive clients who remain growth-oriented and still have a long-term horizon, rebalancing probably continues to make sense.

For conservative- and moderate-growth clients, we are tweaking the fixed-income investments and getting a little more conservative, giving up some longer-term potential benefits in exchange for reduced short-term volatility. For example, we will probably reduce or eliminate some of the exposure to foreign bonds.

We have looked at every client account for opportunities to harvest unrealized tax losses—losses that can be used to offset any gains or up to $3,000 or ordinary income. We are looking at opportunities to transfer funds from IRAs to Roth IRAs for clients who have little income or significantly less income than normal this year.

Reviewing client withdrawal rates
The clients most impacted by this economy and stock market decline are those that are retired. To the extent that clients' withdrawal rates exceed a prudent level (3%-5% depending on age), this will be a very challenging time. We have been reviewing client withdrawal rates.
One of the benefits of diversification is that many of our clients who are retired have 50% or more in fixed-income-type funds. While fixed income doesn't mean guaranteed income, fluctuation is much less than that seen in stocks. The best strategy for retirees drawing on their portfolios is to tap those assets that haven't declined significantly first. In other words, we draw from money funds, short-term bond funds, and longer-term bond funds.
We have run projections for all of our clients taking periodic or sporadic withdrawals to see how long they could tap fixed-income assets before having to sell equities based on the current withdrawal rate. We discovered that on average, our clients could tap their fixed-income investments to cover their monthly withdraws for 15 years before having to sell significant portions of their equities in a down market. Of course, this strategy will gradually make the remaining portfolio more aggressive as the fixed-income portion is a smaller component of the portfolio.

Clients who are withdrawing funds either periodically or sporadically should consider how the market decline has increased the rate of withdrawal. If they have been taking out more than 3%-5% before the market decline, that rate, as a percent of the current value, is now higher. If clients have exceeded our recommended withdrawal rate and have been taking out more than 5% before the recent stock decline, we strongly recommend that they look for ways to cut back on expenses, particularly any discretionary spending. For example, if they were taking out 7.5% per year and the portfolio has declined by 26%, their current rate of withdrawal is now more than 10%. This is not sustainable for a long life expectancy.
We have made a special point of contacting all our clients who are taking out more than what is prudent. We've also encouraged those giving money to adult children to carefully weigh the impact on their own finances. Our philosophy is Mom and Dad first, adult children second. (Not all our clients agree with us on this, but that's what we think.)
In a few cases, where a prudent withdrawal rate doesn't cover expenses, a retiree might consider putting a portion of the portfolio in an immediate annuity. An immediate annuity can provide a guaranteed income, with the downside being that when a client dies, heirs may receive less money. We are careful about which insurance companies to choose, since these policies lock clients in for life and some insurance companies aren't as financially strong as others.

In conclusion
We spend a lot of time discussing risk tolerance and time horizon with our clients. We try to anticipate potential downside risk so that clients aren't shocked when market declines occur, as they inevitably will. This decline is what is referred to as an outlier. It is likely to be in the worst 5% to 10% of market results, falling outside the normal range, with perhaps a one-out-of-20 probability.
We encourage clients to call us for an appointment before our annual review should they be overly concerned. We want to give them perspective during difficult times. We know that market declines take an emotional toll, and we let them know we're here to help them handle it.

How do i create a competitive edge in my job?

The Ten Most Frequently Asked Questions (FAQs) About Cover Letters

Downsizing. Rightsizing. Streamlining. Corporate restructuring. You've heard the buzzwords. You're terrified. And you're ready with a spanking, new resume. But at a time when employers are inundated with resumes, how can you make yours stand out in the crowd?

You can write a dynamic cover letter. The cover letter is usually an afterthought, dashed off to accompany a resume into which you've poured blood, sweat, and cash. Its potential as a powerful marketing tool frequently is overlooked.

The answers to these 10 commonly asked questions about cover letters can help you write a letter that is a key part of a hard-to-resist sales package:


Why is a Cover Letter Necessary?
What are the Biggest Mistakes Cover-Letter Writers Make?
Which Kind of Cover Letter Will Work Best for Me?
Can't I just Mass-Produce the Same Letter to all the Companies for Which I'm Interested in Working?
What's the Most Important Thing to Include in the Body of the Letter?
What Other Approaches Make a Cover Letter Dynamic?
Should I Include References in my Cover Letter?
How Long Should the Letter be?
What's the Best Way to Make Sure my Cover Letter is Well-Written and on Target?
Are Thank-You Letters Necessary?

Should You Make Investment Decisions Based on Performance History?
"Past performance is not a predictor of future results." We have all seen this phrase in virtually every document promoting an investment fund offered by an investment advisor or mutual fund company. It could be that it appears so often that investors may be de-sensitized to it and simply ignore the warning. After all, why are mutual funds any different from our favorite sports team? If our team has an unbeaten streak and the best record in the league, wouldn't we be reasonably safe in thinking that our team will win its next game?
But successful investment performance is not the same as successful athletic performance. While some renowned investors such as Warren Buffet, Peter Lynch and George Soros have indeed produced excellent and consistent investment performance, investors must exercise caution when selecting a fund or even an asset class such as stocks based solely on the fund's or asset's recent performance. Why? Because one can rarely, if ever, statistically prove that the performance history of a fund is a predictor of future performance. So, when making a decision on how to invest your savings, you should not focus on the investment's recent performance record. Understanding the concept of serial correlation will help you understand why.

Serial Correlation: There's no proof history will repeat itself
The term serial correlation is simply a statistical exercise that determines the degree of confidence that one might have when predicting the future based on past observations. One looks at a series of numbers or events to see if there is a pattern and tries to determine how likely it is that the pattern will continue. If a series has perfect serial correlation, then one should be very confident that he or she could predict the future based on past observations. If a series has no serial correlation, it means that future observations will be random and are completely unrelated to the past.

Are you trying to predict the market? You might as well flip a coin
The best example of a series that is random is the flip of a coin. If you pulled a coin from your pocket or purse and tossed it in the air five times and all five times it came up heads, what do you think the chance is that the next flip will be heads? Do you think that it would be heads again just because the first five flips were heads? Of course not!
As in flipping coins, it has been mathematically proven that the future performance of the stock market has no serial correlation with past performance. It is random. The stock market going up on a day after five straight days or during a year after five straight years of positive performance is like a coin flip. It is purely a random event.
The same can be said for mutual fund performance. Just because a fund produced five years of excellent performance does not mean that one should expect a sixth great year. Whether the fund performs well or not for the short term is just like a coin flip. As for any investment, one needs to think long-term. One simply cannot predict long-term mutual fund performance based on a short-term record.

It Doesn't Always Pay to Follow the Leader
It was not unusual for staff at the General Board to receive phone calls from participants during 2002 who said something like: "I have just switched all of my money from the Domestic Stock Fund to the Domestic Bond Fund. Bonds are performing well and stocks are performing poorly." In 2003 the story is different. During the summer, participants have called saying: "I am switching my money out of the Domestic Bond Fund and into the other funds that are performing better."
When one says, "performing better", one is implying that they believe that the past is a predictor of the future. For investors, this is almost always a loser's game. Investors who follow a philosophy of buying after a class or a fund has performed well are doomed to a lifetime of "buying high and selling low". These investors will experience significant degradation of wealth and a lot of sleepless nights.

So, what is an investor to do?
First, you must resolve never to make an investment decision based solely on historical investment performance. Think of it like a coin flip that cannot be predicted and resolve to use another method. Second, you should consider seeking the advice of a fee-only financial planner. Such an individual will help tailor a financial plan for you based on your own unique circumstances, financial goals and risk tolerance. Third, with the help of your financial planner, develop a plan and stick to it.
Too often investors abandon a carefully thought out plan just at the wrong time. In the late 1990s, many people with diversified investment portfolios jettisoned their bonds and loaded up on technology and telecommunications stocks right before the bubble burst. As a result, these people saw significant losses in their investment portfolios, and many have had to defer their retirement plans. In 2002, many people jettisoned stocks in their investment portfolios in favor of better performing bonds. As a result, they missed the recent rally in stock prices. In both cases investors abandoned their long-term investment strategy at the wrong time and their wealth accumulation was significantly affected.
There is a good reason why you see the phrase "past performance is not a predictor of future results". The reason is because it is the truth! While at first it may appear that there is a pattern to stock or fund performance, in fact, it is merely random and therefore unpredictable. You can provide yourself with greater assurance of financial independence by following a well thought-out strategy. That way you can avoid disappointing results from selecting investments based solely on past performance.

*article by http://www.gbophb.org/sri_funds/articles/perfhistory.asp

HOW TO PROFIT FROM THESE BAD TIMES ?

I had my clients who called me up asking about recent financial news on how much it will affect them. Common issues being brought up are like , is my investment safe ? shall I withdraw my investment /policy right now? where can I place my money now ?

I would like to highlight to everyone to stay invested and if you have spare funds, you can start to BUY instead of sell. I would support my claim with a simple graph below and share with you some financial history. So what is STI index in the first place ?

The Straits Times Index (STI) is a market value-weighted stock market index based on the stocks of 30 representative companies listed on the Singapore Exchange.
From Wikipedia, the free encyclopedia

In simple terms, it means taking Singapore TOP 30 companies which includes big companies like DBS, UOB, SPH and etc listed inside our market to mark an average and represent an index like what you see below. Therefore, when the price of STI move up or down will give you an indication of Singapore economy movement as well.

Let me share with you a story on the financial downturn in 1998. During the 1990s, Singapore is enjoying a boom in economy especially in the Property sector. A lot of Singaporeans made huge gains through buying and selling of properties then. However, in 1997 Asian financial crisis started from Indonesia and Thailand which causes STI index to drop from 2300 points down to just around 800 points in just 1 year. It means if you invest your money inside STI index, you are losing more than 60% of your money.

Singaporeans then faced big challenges and high unemployment rate. A lot of people sold their stocks then to cut their losses in the market. Big mistake !!

Little did they know that if they were to stay invested , in just a short 2 years time frame, STI went back to 2400 points and move all the way up to the highest peak at 2006 where it reaches 3900 points.

Base on the graph above, if you were to buy in at the wrong time of 1997, you are still making a good profit if you were to keep faith in market cycle where we understand what goes up will come down and vice versa.

Come back to recent financial crisis , we are experiencing the similar trend from the 1998 situation. Therefore, if you are thinking that you have invested in the wrong time, I urge you to keep faith in market trend where histories always repeat by itself. If you have not invested your money or waiting for the 'right time' , I will urge you to source out investment opportunities RIGHT NOW !!

With this in mind and you are experiencing time constraint to source a good investment yourselves. Allow me to introduce Prudential Singapore managed fund.

Singapore managed fund prices are very much link to STI index I share with you. This fund is investing into major companies in Singapore like UOB, KEPPEL CORP, DBS , SINGTEL and etc. Prudential provides you with Asset management team to upkeep the unit trust fund for you and all you need to do is to stay invested for a period of time for your money to out grow common interest rates we are all experiencing. Don't wait for another 10 years for this chance to pass by. Let us profit in this bad times together !!!

Cheers !!

Is the market bottom yet ?

"Major stock markets in London, Paris and Frankfurt were 3 percent to 5 percent lower in the early trading. The story was much the same across Asia,

The Dow Jones industrial average lost 176 points, or 2 percent, after being down as much as 310 points earlier and recovering to within a few points of the break-even line. The Standard & Poor's 500 index and the Nasdaq composite both shed 2.2 percent......"

Above information from http://www.cnn.com/

What has the above news going to affect us ? When will be the bottom of the current market ? Is the situation now really as bad as 1930s Great Depression ? These are the thoughts i have for the past few weeks. Market have rebounded a little during pre and post obama election but frankly i doubt things will get better after that. There are a few reasons why i felt this way,

• the fundemental of financial system in US is not fixed yet (which means world market is going to get affected as well)
• recession have NOT gone full steam as jobs are not lost as much as expected (but i am expecting it to come soon)
• Singapore Airlines is not having full occupancy for their flights (a sign of world spending is dropping)

Frankly ,for the above question, i am still finding an answer. But there a few things i am quite confident in the near future,

1. jobs are going to be lost (please hold on to ur jobs)
2. market will still go down (STI to be estimated to be around 1300 to be the bottom point)
3. spending will reduce (also means look where u spend ur money)
4. financial sector will the most affected where in turns medical sector will benefit from the situation

There are lots of signs that 2009 is going to be tough for a lot of people (including IR emplyment) and therefore please do not be so particular about your jobs you are holding now and WATCH YOUR FINANCE WITH CARE. If you can save now ,PLEASE DO.

Top financial stories as at 11th Nov 08

Fannie's loss: $29 billion
Continued problems in housing market continue to drag down government-controlled mortgage finance giant.

AIG: Uncle Sam's do-over
Fed restructures loan and creates 2 programs to rescue insurance giant from bad bets. Treasury buys $40 billion in shares. AIG quarterly loss: $25 billion.

Circuit City to stay open in bankruptcy
Beleaguered No. 2 electronics retailer urges budget-conscious consumers not to shun its stores for holiday gifts

DHL cuts 9,500 U.S. jobs
Delivery firm to end U.S.-only operations, will continue shipments to other countries.

This blog is worth A MILLION DOLLARS

I am in financial sector for the last 5 years and this job gave me an invalueable opportunity to meet a lot of people. By doing so, I realise that there is a financial tsunami befalling upon us in years to come. What makes me feel this way is because I realise that investment education by gurus has been slowly outdated , many people are still being educated to think employer will take care of them and we are not educated enough to make sound financial plans and investments individually just to name a few.

You see, I preeched to my clients about placing their money to make their money work harder but being not informed into any investment we buy in can also be EXTREMELY DANGEROUS . (E.G. LEHMAN BROTHER MINIBONDS) . Similar issues can also be said about such a BIG organisation which used to be inside top 500 US companies , Lehman Brothers being bankrupt and caused many to be jobless. Are you aware that many bankers in US who used to earn USD 10000 a month with 16 months bonuses are looking for jobs in Singapore and many partsof asia for just an expected salary of $3000 a month ?

I created a mission to myself to share my financial education to as many people as possible and in turns learn from others as well. My defination towards financial education is more than just investment or money making ideas but also job enhancment opportunities and personal development skills.

I would like to disclaim here that taking informations off my blog tomake any financial decisions is 100% on your own will.