A recent study by the University of Michigan stated that consumer confidence in the stock market is at that same high level that it was in July of 2007. What’s the significance of that? From October of 2007 to March of 2009 the stock market corrected and lost over 50% of its value. (view the study here)
The study is not necessarily the canary in the coal mine for a stock market correction, but another opportunity to revisit your risk tolerance and see if it is in line with the way your current retirement assets are allocated. At Montini & Farrah Tax Advisory Group we believe in the stock market, but in a manner that can help mitigate risks.
Come get a free analysis.
If you bring your statements to our office we would be happy to do a Morningstar analysis for you at no cost. Morningstar is a leading provider of independent investment research. Their unbiased report will tell you many things about how your accounts are invested. Here’s some of the insight you will gain from the Morningstar report.
Risk is measured through what is called Beta. The S&P 500 has a beta of 1. If your beta is .75 then you will share in 75% of the upside of the market as well as 75% of the downside. As an example, if the S&P 500 were to drop by 50%, you could incur a loss of 37.5% if your beta was .75.
Did you know that mutual funds have two underlining expenses; the expense ratio(paid to the money manager) and the 12-b-1 fees (to cover the expense of marketing the mutual fund). Both fees combined could range from .25%-2% and are paid in addition to any management fees you may be paying the broker.
Overlap and Lack of Diversification
A mutual fund is a conglomeration of different types of assets. Problems with this strategy occur when all the money managers are buying the same stock. You could have 10 different mutual funds that all hold the same 45 stocks.
Interest Rate Risk
The report will look at the bond holdings in your portfolio and address how much risk you have as interest rates rise. Remember as interest rates rise, bond values fall.
The philosophy at Montini & Farrah is that real wealth is not necessarily created in up markets, but instead by preserving the wealth you have and not taking the big loss when the stock markets correct.
Call our office today at (480) 428-8005 to get your free Morningstar analysis
Written by Marc Montini with the Montini & Farrah Tax Advisory Group. Marc Montini is a licensed fiduciary who provides tax and retirement planning guidance.