Investment Strategies

Asset Allocation: Rather than focusing on which stocks to buy or sell our investment strategy is to use an "asset allocation" plan that provides proper diversification. For example, a typical portfolio might have the following "weightings":

5%- Precious Metals
10%-REITS
10%-Fixed Income/Treasuries/Closed End Funds 15%- Royalty Trusts (monthly dividends) 30%-Foreign Common Stocks
30%-Domestic (US) Common Stocks

These weightings give the investor broad exposure to several different asset classes which do not often correlate with one another. "Negative" correlation is a good thing. It can mean that while common stocks are struggling, REITs and Precious Metals may be moving up. The overall effect is one of "hedging" against dramatic declines in stock values. We have effectively used this strategy to deliver double digit returns for each of the past 4 years.

Retirement Planning: With the decline in traditional pensions and the relatively poor investment performance of 401k plans (and their high administrative fees), planning for retirement has become a huge challenge. There are strategies that can be used to offset higher management fees. Here are some examples:

1. Set up a Roth IRA (or convert traditional IRA). With inflation returning as a drag on our retirement assets, it is imperative that the investor take advantage of every opportunity to maximize after-tax income. Although there is no tax-deduction for a Roth contribution, all withdrawals are tax-free. Another advantage is that there is no mandatory distribution at age 70.5 At retirement (whatever age) the investor would first draw upon taxable funds allowing the Roth IRA to continue to grow tax-deferred AND tax-free.
2. Consider an annuity as a "supplement" to a 401k or pension plan. Annuities have many tax advantages. They can be bought with a "death benefit". The investment earnings are tax-deferred. They are also exempt for the purposes of calculating Florida Intangible Tax liability. However earnings withdrawn from an annuity are taxed as ordinary income, not at the more favorable capital gains tax rate. Withdrawals can be tricky. Usually annuities "lock up" your money for a period of up to 10 years during the accumulation period. If you withdraw the money before the period is up, a surrender fee of anywhere from 7 to 20% is paid to the insurer. If you withdraw your funds before age 59 1/2, a 10% penalty fee is applied by the Federal Government.
3. Start contributing as early as possible. Studies have demonstrated the advantage gained by starting retirement contributions as early as possible. The power of compounding is the primary reason for the widespread advantage in making earlier contributions. Reinvest dividends wherever possible. This also adds to the compounding affect. Contribute each and every tax year. Remember that at age 50 you are eligible to make an additional IRA contribution each year ($500 in 2006).
4. Consider Life Insurance (Cash Value) as a means to pay for estate taxes or other big ticket items. Once again the Tax Code favors insurance products. All payouts are generally tax-free. They grow in a cash account at fairly level growth rates, attempting to match or exceed the cost of living index.

College Savings Plans. With the major increases in tuition in colleges and universities it has become essential for parents to find ways to cushion themselves against the "rising tide" of tuition. 1. Coverdell Accounts/Education IRAs.
These are Government sponsored programs that allow you to contribute funds to an education savings account. They are good programs. However, one of the limitations of these is the relatively low allowable contribution. It would take several years of contributions before a "nest egg" could be established.

2. 529 Plans.
These are programs run by the States. They vary in management fees and investment performance. However, they can be an effective tool in building up a tax-free account. All withdrawals must be used for either tuition, books, fees, or room and board to qualify for the tax exemption.

3. US Savings Bonds/TIGR Bonds/Zero Coupons. These are relatively low-risk debt instruments that pay a face value upon maturity. Their value rises and falls with the prevailing Prime interest rate. However, if held to maturity, the holder receives the full face value of the bond. Interest paid (semi-annual or annual) is taxable. These may be effective supplements to a 529 plan, providing some balance to a stock fund.