|
Conversations - Spring 1999
LWA NEWS
Zuzana Harvis joined our Asset Management group in
March. She has an Associate of Science degree in Business Administration and
continues her business studies at Rutgers University in New Brunswick. Zuzana is
a member of Phi Theta Kappa and Alpha Beta Gamma, two International Honor
Societies for undergraduate students. Suzanne C. Low from our Naples, Florida, office will
be teaching Estate Planning at Nova Southeastern University. The course is a
part of the CFP®, education program. Students take these courses to prepare for
the national CFP®, exam. As some of you may already know, the LWA team lost
two of its four-legged members: Shelli died in October, followed by Nikki in January.
We deeply miss them. Manda did not stay alone for long, as she now has a
new pal: adorable five-month old puppy Samantha. In March, Diahann spent a week in Israel. She was
invited by Israel’s Prime Minister’s Office. She spoke at the Tel Aviv
University at a conference focusing on economic power of women and their
influence on social issues in the new millennium. In early April, Diahann went to Tokyo where she spoke
at the 50th Anniversary Convention of the Tokyo Chamber of Commerce
Business Women’s Club. Diahann recently testified before the House
Sub-Committee on Social Security on the impact of Social Security on women. She
will continue to be active in working on this issue. On a sadder note, Clare’s
mother passed away on March 1. Clare spent several days with her brothers and
sister and continues to actively monitor her father’s care. INVESTMENT TOPICS
Most of the questions that we receive from all of you
focus on investing issues. We plan to take the 1999 newsletters to review the
basics of a good investment policy that we use in developing your financial plan
and monitoring your investments on an on-going basis. Each quarter we will highlight an investment topic that we think might be of interest to you. This quarter’s topic is Basic Investment Concepts. The rest of 1999 will cover Asset Allocation, Rebalancing and Tax Issues on Investments. BASIC
INVESTMENT CONCEPTS
Why invest?
One
of the reasons why people invest money is the fact that if left alone, money
loses its value over longer periods of time. Economists explain this fact with a
phenomenon called inflation: the gradual tendency of prices to rise over time.
Thus money that is worth $10,000 today will only be worth the equivalent of
$9,800 next year because 2% inflation will take its toll. To
beat time (and inflation), people invest their savings. Invested, money
increases its value, earning a return equal to or up to several times higher
than yearly inflation. This return, composed of interest/dividends and value
appreciation, not only preserves the value of money
but next year helps earn additional return itself. Through the compounding
effect, a dollar invested today can be turned into thousands of dollars if
invested correctly and long enough. Planning comes first!
Before investing your money, we need to know your answers to several important questions: G
What goal
do you expect to achieve by investing? G
How much
do you want to save? G
How much
money can you really put aside each month? G
When do
you need your money? The answers help us determine your financial goals
and set up the correct financial plan for you. There are two basic investing
principles to keep in mind when planning your investments: ü
The
more you can invest, the more you can earn. That’s
why we analyze your cash flow (income less expenses) to find out the
highest amount that you could invest. You should plan to put aside regularly the
most money you can and thus maximize your potential return. We recommend that
you put away as much as possible, with a goal to save 10% of your annual income. ü
The
longer your money can stay invested, the higher your potential return will be. You
should plan to have additional money set aside for emergency purposes, so that
your investment can safely grow untouched for the longest period of time. Where to invest? Now
it is time to determine your investment style. How comfortable are you with the
risk inherent in investing? How much risk can you afford? How much do you really
want to risk? Answering
these questions will help us determine where we should invest your money. There are two major asset classes to consider—
Bonds and Stocks: Bonds are generally considered safer but usually do not
generate high returns over the long term. Stocks have proved to bring
relatively high returns over the long term but can also be relatively risky over
the short term. What portion of your savings do we allocate to bonds
and to stocks? You’ll have to wait until our next newsletter to read about Asset
Allocation! MUTUAL FUND HIGHLIGHT
International Funds or Worldwide Funds – what’s
the difference and how do we use them? Funds that invest predominately in foreign companies
are International funds. Funds that
invest in both foreign and US companies are considered Worldwide funds. On our recommended list, we have the Janus
Worldwide Fund and the Janus Overseas Fund.
While both of these funds are considered “international” funds, they
definitely have distinct investment objectives.
They can also have very different performance depending on the
composition of their portfolios. Janus Overseas is an international fund.
It invests predominately in foreign companies usually in at least five
different countries. As of 2/99,
the fund held 90% in non-US stocks. Its
one-year performance ending 2/99 was 6.95%. Janus
Worldwide is a worldwide fund. It
invests in both foreign and US companies. As
of 2/99, the fund held 29% in US and 61% in non-US stocks. Its one-year
performance ending 2/99 was 16.40%, which is explained by heavy concentration in
US stocks which have outperformed their international counterparts recently.
|