Friday, January 8, 2010

Top 9 Tips for the Successful Investor in 2010

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

It’s amazing how powerful the turn of the calendar can be.
New Year’s resolutions dominate the landscape with all of the weight loss programs and products at the top of the list. I’ve never been a huge resolution person, probably since there’s just too much I need to change and it’s a little overwhelming!

But each year, I may pick one single project that needs to get done and is manageable. This year, my office resolution is to be paperless by this time next year, not exactly sexy or exciting, but important, nonetheless.

As investors turn the page from the bounce back year of 2009 to 2010, here are 9 items to consider.

1 – Take a financial inventory of your current holdings.
Make a list of all holdings on a piece of paper or Excel spreadsheet of their values at the end of 2008 and 2009. Determine the composition of your portfolio: What percent is in stocks, bonds, currencies, commodities, cash, etc.? Try to understand why something did better or worse than expected and consider adding or withdrawing where appropriate.

2 – Asset allocating among stocks and bonds hasn’t worked well all decade and it’s unlikely to work in the next decade.
Modern Portfolio Theory (MPT) may not be dead, but it’s critically wounded and has hurt hundreds of thousands of retirees this past decade. If your portfolio doesn’t own other assets, like currencies, commodities and protection against inflation and deflation, it’s long overdue!

3 – Beware the “Money Magazine Jinx”.
What worked well in 2009 isn’t likely to be repeated in 2010. When the popular publications like Money and Fortune give kudos to a particular investment’s success last year, it’s usually close to the end. That’s been the case the vast majority of the time in bull and bear markets. Be VERY careful chasing the winners!

4 – After a horrific climate in 2008 where most asset classes were decimated, 2009 was the bounce back year where most people began to feel better and their portfolios stabilized, worst case.
Don’t get complacent and think we’re going to party like it’s the 1990s all over again. It’s going to take years and years to fix all that ails us and we haven’t seen the last trap door or sink hole. Stay active and focused!

5 – State and local tax receipts are falling faster than Tiger Woods’ sponsor list.
Given how the economy fell off the cliff in 2008, this wasn’t hard to predict, but who ever said politicians could effectively budget? States like California, Arizona, Florida and New Jersey have enormous budget deficits, not to mention the trickle down effect to counties and towns. I have grave concerns that a municipal bond crisis isn’t too far off and defaults will follow.

Muni bonds inflows reach record levels over the past year or so as investors chased yields so there’s an awful lot of air to be let out of that market. Be very selective on what you buy and stick with the most pristine municipalities, even if that means lower yields. If you tend to buy bond funds, diligently check how much leverage (borrowed money) they use to juice the yields higher. Nuveen is one company that built a business on it. To paraphrase Mark Twain, be more concerned about return OF principal than return ON principal!

6 – Not a new worry, but the biggest risk to the financial markets and economic recovery is politicians running amuck, especially in a hugely important midterm election year.
The nasty partisan politics we’ve seen is only going to get worse and that’s just not good for investors. Believe it or not, the stock market typically performs best when Congress is split, gridlock.

7 – Don’t be fooled by the temporary reprieve in the real estate market.
It may rally a bit, but the two biggest tailwinds of the past 25 years, declining mortgage rates and easy access to capital, are no longer blowing. With so many potential homebuyers no longer able to secure a mortgage, organic demand will fall for years to come. I think the best case for real estate is flat prices this decade.

8 – With trillions of dollars being printed by the government for a variety of programs, and budget deficits soaring as far as the eye can see, investors should prepare for higher taxes across the board.
By doing nothing, the Bush tax cuts will expire this year and tax rates will rise. But I don’t think Congress will leave it at that. Call them fees or surcharges or however you want to spin it, the government is going to dip into our pockets more than they have in a long time!

9 – If you’re confused, want to bounce an idea off someone or would rather not handle your own portfolio, seek the help of a qualified professional.
Look for someone who offers independent advice as a Registered Investment Adviser (RIA) and not just a product salesperson. An RIA is a fiduciary and by law, must put clients’ best interests first, and follow the prudent man rule. Hiring a professional could be a nice topic for a future entry.

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz

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