The news of scandal has recently rocked the $7 trillion mutual fund industry. If you own a mutual fund, are wondering how this might affect you and what action you should take, read on.

Many of the recent charges relate to a practice known as late trading. Mutual fund orders have to be placed by 4 p.m. Eastern time in order to receive that day’s closing price. If an order is received after the cut-off, it can’t be processed until the following day.

But with late trading, selected orders received after the cut-off are still given same-day status. Some mutual fund companies allowed a select few to do this and then went to great lengths to cover up these trades. This is clearly illegal and those involved should be severely punished.

Market timing is another practice being scrutinized. Traders buy and sell mutual fund shares based on small changes in the prices of a fund’s underlying stocks that aren’t currently reflected in the fund’s share price. This is most often done with international stock mutual funds, because of the delay in the close of overseas markets and those in the U.S. Market timing itself is not illegal. But some mutual funds stated in their prospectus that they did not allow such trading, but secretly allowed it anyway for certain investors.

The effect of both of these practices is that they allowed a privileged few to profit while in effect lowering the overall returns for the large number of smaller, longer term investors. The willful deception of shareholders by the fund management is inexcusable.

It’s important to keep these charges in perspective. First, the underlying value of the stocks in these mutual funds has not been affected. This isn’t like Enron where you could see your investment drop 80% simply because of the scandal. Second, the market timing charges are mostly limited to international funds. Third, so far only a few fund companies are affected. And last, mutual funds in general still remain an excellent investment vehicle.

What should you do if you are in one of the mutual funds named in this scandal? You might want to consider getting out of that fund and that fund company altogether. But getting out might be difficult if you face a stiff penalty or recently paid a big commission when you purchased it.

In this case, you’d have to weigh the cost of liquidation against the level of your concern. If moving out of the fund family altogether proves too costly, you can at least move ‘sideways’ into a less-affected fund in the same fund family.

If you are trapped in a fund family because of commissions or penalties, you should probably find a different advisor. My clients don’t have to pay big commissions or face stiff surrender penalties on their investments and neither should you! It is completely unnecessary and it severely limits your ability to quickly make changes when needed.

You might also consider alternatives to investing in mutual funds. For instance, Exchange Traded Funds (ETFs) provide the diversification of a mutual fund but are actively traded like a stock, which means they can be bought or sold any time during the day. ETFs are designed to mimic an underlying index and since they are not actively managed, they have very low internal fees.

Several things are certain about the current mutual fund scandal. More affected companies will be named in the weeks and months ahead. Criminal and civil charges will continue to be filed. Class action suits are sure to follow. New regulations will be discussed to keep such illegal activities from reoccurring.

The jury is still out on how all of this will affect you. Hopefully some positive reforms will result, but regulators have a tendency to overreact and create solutions that in the end do more harm than good. Stay informed, keep an eye on your funds, and be prepared to make adjustments so you can stay on track to meet your goals.

If you have questions or are concerned about the funds you are invested in and would like my opinion on your specific situation, free of charge, let me know. It’s your money and you need to make sure it is protected.

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. He can be reached toll-free at 1-877-827-1463 or at jeff@guardingyourwealth.com

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

We always hope for the best when we enter into an investment, but what happens when things don’t work out as planned? Follow this simple advice to make the most out of a bad situation.

My mother-in-law is an avid gardener. She really enjoys springtime—tilling the soil, preparing the rows and planting seeds. It’s easy for her to imagine a lush garden bursting with produce. But not every seed planted will result in a harvest.

If a surprise late frost destroys her potatoes, she doesn’t waste time fertilizing, weeding and watering the blackened plants. She cuts her losses and replants with something else. It’s the same way with investing. Not every investment is going to bear fruit. Some will lose money. Others may not earn as much as they should.

You must have a strategy in place to invest successfully. That includes a strategy for when investments don’t perform as well as you’d hoped. As the old country song says, “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.” Of course, investing isn’t a poker game of chance, but it does require diligence and action.

So what do you do if your investments decline? The result of a decline can be because of macro factors or micro factors. Knowing which affected your investment will guide you in determining the best course of action.

Macro factors are events based on large, all-encompassing events such as an economic recession, a bear market, or reactions to acts of war or terrorism. A stock declining in value as the result of an overall market drop would be a ‘macro’ factor. A bond mutual fund losing value because interest rates go up is another example of a ‘macro’ factor.

Micro factors are smaller events where the effects are narrow in scope. Changes in the management of a mutual fund, pending lawsuits or regulatory investigations of a company whose stock you own are three examples. Or maybe the company’s products aren’t as competitive as they used to be or they’ve been found guilty of accounting fraud.

When an investment is being affected by macro events, it may be best to sell all or a part of the investment and keep the money safe until the situation changes and the risk is reduced. War or an economic recession is a good example. If you are uncomfortable with further potential loss then it is better to move to cash and ‘keep your powder dry’.

But if micro factors were the main cause of a decline in value then it may be better to sell that investment and put the money into a different company or different sector of the market. For instance, if Microsoft had a bad earnings report released and it looks like their planned product releases aren’t being well received, you might want to find another stock that is performing better.

Lastly, don’t emotionally beat yourself up if one of your investments fails to perform as you expected. You can’t control the market but you can control how your respond to the market. Don’t ignore the investment or deny its lack of performance. Take action yourself or seek competent professional advice from someone who has your best interests at heart.

My clients expect me to keep a close eye on their investments and to take action when necessary. And we have proprietary systems in place to help us do that. What strategies does your advisor employ? Do they have a logical and prudent plan of action, or are you told to “hang in there, it will come back,” while they do nothing to stop the bleeding in your account?

That strategy might work during a bull market but not during a bear market. Besides, it will do nothing to protect you from micro events that affected the likes of Enron and World Com. Make sure you or your advisor are diligently protecting your wealth. Actively monitor each investment and keep an eye on both the big and the little picture. And take action when an investment goes bad.

If you have any questions about this or any other financial topic, I’d love to hear from you. You can reach me online at www.guardingyourwealth.com or toll-free at 1-877-827-1463.

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Could your financial advisor sheep really be a wolf? Read on to find out. I’ll also share practical steps you can take to keep from getting fleeced.

First, beware of the person that comes into your religious fellowship with a hot new investment that promises great returns with little risk. For instance, numerous African Americans were recently fleeced of their life’s savings by a wolf in sheep’s clothing promising IRS slavery reparations refunds. Of course, people had to pay a fee to have the proper paperwork submitted. There have been other kinds of scams, but one thing is always the same: the con artist used the local church for credibility.

Secondly, don’t make the mistake of basing your trust of a financial advisor on the fact that the advisor shares your religious beliefs. Doing so will only set you up to be disappointed.

Just because an advisor is religious doesn’t mean they have insight from a higher power that will miraculously transform your humble nest egg into riches. Just because they spend time in prayer or meditation doesn’t mean they have a sixth sense when it comes to investing. Just because they possess a great deal of knowledge about scripture and are active at church doesn’t mean they’re an expert in investment, financial, estate or retirement planning.

The most important issue when choosing a financial advisor is competence and experience in dealing with the financial issues you face. If the advisor also happens to share your faith, that’s a nice bonus. But don’t make the mistake of confusing religious beliefs with financial experience, extensive training and ability.

Third, recognize that just because an advisor shares your faith or attends your church doesn’t mean that he/she will have your best interests at heart. In other words, don’t ‘let your guard down’ just because the advisor is a Believer.

Lastly, beware of the religious advisor who spends more time trying to analyze your personal problems instead of your financial dreams. Their job is to help you reach your financial goals. Don’t allow your personal relationship to confuse the business purpose. Manage the relationship just as you would any other business relationship.

Don’t accept poor investment performance because your advisor shares your religious faith. Keep your objectivity by clearly drawing a distinction between your personal relationship and your business relationship.

Please don’t think I have anything against being a person of faith. It’s quite the opposite. My wife and I have served overseas as missionaries. We’ve written and produced children’s Bible story cassettes and created the fastest launching children’s program in Christian radio history. My faith has made me who and what I am today. But my clients, the people who come to my popular financial seminars and you who read these articles do so because of my financial expertise, not my spiritual expertise.

Take these simple steps to help make sure the advisor who shares your faith should also manage your money:
Find out how the advisor gets paid. If the advisor gets paid by commission there will be some inherent conflicts of interest in the relationship. Look for an advisor who is fee-based.

Find out the advisor’s level and area of expertise. How long has he/she been an advisor? What advanced training does he/she have that is pertinent to your needs? What is his/her specialty? Working with an advisor who is a Certified Financial Planner guarantees a level of competence that few stockbrokers or insurance agents possess but even that should just be a starting point.

Ask for references of other clients who share your financial goals. Call the references and ask specific questions that will allow you to objectively measure the advisor’s performance. How did your investments perform relative to the market? How frequently are you contacted? Does the advisor take action when investments don’t perform as expected?

Always remember that it’s your money and it’s your responsibility to be a good steward of it. First and foremost, find a trained, competent professional to help you with your finances. If they also happen to share your religious beliefs that’s great!

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. Get ‘How To Avoid The 3 Most Costly Mistakes Retirees Make’, a Guarding Your Wealth Special Report FREE at www.guardingyourwealth.com or by calling toll free 1-877-827-1463.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Choosing the right type of investment doesn’t have to be difficult or confusing. In a moment, I’ll share a simple analogy that will empower your investment decisions.

If you are like some people, you may find the world of investing complex and hard to understand. You know you want to do something with your money but you don’t feel you have the knowledge to choose the right kind of investment. All too often this can result in getting stuck with an investment you didn’t really want or that doesn’t perform the way you expected.

Understand all investments have risk and that there are many different kinds of risk. Some think that a Certificate of Deposit at a bank if risk-free because it is guaranteed by the government. It is free from the risk of the bank defaulting, but it is NOT free of interest rate risk or the risk of rising prices.

The key to successful investing is to determine the various risks you face and then to select the investments that best protect you from those risks. You will almost always find that you face more than one type of risk.

For instance, on the one hand you may need to keep your money stable so that it can provide you the income you need to live. On the other hand, prices for medications, insurance, food and fuel keep going up each year so you need some way to protect the purchasing power of your income from the long-term effects of rising prices.

Not keeping all of your investment eggs in the same type of basket may be the solution. Having a portion of your money in investments that are stable and designed to produce steady income will help you meet your current needs. Having another portion of your money in investments designed to protect you from rising prices will help meet your future needs. The portion you have in each should depend on the amount you have and your comfort level.

Here’s the simple analogy. In general, all investments fall into one of two basic categories. There are investments where you loan your money to someone and there are investments where you own something. Loan investments are designed to provide a stable source of income but don’t protect you from rising prices. Owned investments, such as mutual funds that invest in stocks, are designed to protect you from rising prices but have a return that fluctuates.

Think of it this way. In all likelihood, you own or are purchasing your home. Why? Why not rent? People buy homes because they know that over time their home will appreciate in value and be worth more than they paid for it. Renting, most people feel, is like putting their money down the drain—you don’t get anything for it in the long run other than the dividend of a place to live.

How much will you make on your home this year? There’s no way of knowing. It depends on interest rates, the economy and the cost of raw materials in your area. Some months and years your home will actually lose money, but that doesn’t mean a home is not a good investment because, generally, real estate will appreciate in value over time.

So here’s the bottom line. For money you plan to use in the next 1-3 years or for that portion that you must have to provide income, it is better to rent your money—to use loan type of investments. The other portion of your money should be used to buy investments where you own something that will appreciate in value over time.

Of course, not all loan or own investments are created equal. Within each category, there are many choices available, some better than others. And you will want to further diversify within each category. But understanding the basics of loaning versus owning will help you know where to start.

Lastly, recognize that there is no such thing as a perfect investment. Beware of investments that attempt to meet all of your needs in one product. Often, these end up being a jack-of-all-trades but a master of none. You can have better control and flexibility if you look for the best investment for the particular risk you face.

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. He can be reached at www.guardingyourwealth.com or by calling 1-877-827-1463.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Lately, the press has focused on the Mutual Fund Late Day-Trading Scandal. But there is another scandal that could have had a much greater impact on your investments. The NASD estimates that “investors did not receive discounts in approximately one out of every five transactions that were eligible for discounts.”

This scandal has to do with consumers being cheated out of the breakpoints they’re entitled to when buying commission-based mutual funds. To better understand this problem, you first have to understand your choices. One choice is to pay all the commission up-front (A shares). Another is to pay it through a surrender penalty if you pull your money out of that fund within 7 years (B shares). B shares have higher internal fees so that you end up paying the fund company back even if you stay in the full 7 years. Regardless of when you pay, the broker gets paid right away.

Most people are not aware that mutual fund companies allow you to pay less commission up-front when you invest more money. For instance, a typical commission-based fund family charges an up-front commission of 5.75%. But if you invest $50,000 or more in that mutual fund family the commission is reduced. The more invested, the less commission percentage you pay. Invest $250,000 and the commission drops to 2.5%. This is called a commission breakpoint and is available on the up-front, A shares option.

On the other hand, there are no breakpoints on the B shares option. The result is that if you invest more than $50,000, the broker has a financial incentive to sell you B shares instead of A shares. They make more money because you are overcharged and most times you don’t even know it.

Brokerage firms are supposed to have internal controls to prevent brokers from over-charging clients by selling them the wrong share class. Typically, a brokerage firm will limit ($100,000) how much can be invested in B shares. This is sort of like trusting the fox to guard the hen house, though, because if the broker makes more money so does the brokerage firm.

Brokers have found other creative ways to overcharge their clients who purchased mutual funds. They may recommend A shares for some money and B shares for the rest. Or they can spread the money between several mutual fund families so that you don’t earn the breakpoints you would get if all of the money was invested in the same mutual fund family.

It is very difficult for the average investor to know how much they were charged. Your purchase confirmation doesn’t show how much you paid in commission. Very few people read the prospectus to see if breakpoints are available. Most don’t understand the difference between A and B shares and rely on their broker to decide which is best.

The NASD tells you to ask yourself these questions to see if you might be affected: 1) Have I purchased a mutual fund with a front-end sales load? 2) Have I purchased additional funds in the same fund family? 3) Have close family members purchased shares of this fund or fund family? 4) Is the total of these purchases together greater than $25,000?

The process to find out if you have been overcharged is involved. For A share purchases, compare the price you paid with that day’s Net Asset Value price. The percentage difference is how much you paid in commission. The prospectus will tell you any breakpoints you were entitled to. You’ll also want to see how much you invested in other fund families, and if you would have received a better breakpoint if you had stayed with the same fund family. For B share purchases, one red flag is if you purchased $100,000 or more.

Of course, the best solution is to avoid paying commissions altogether. Some advisors work the way I do, where instead of paying commissions, clients pay an ongoing fee based on their account’s value. In the industry, this is referred to as being a fee-based advisor. This way you know exactly what you’re paying and you keep maximum control and flexibility.

If you have suspicions, it may be worth paying your accountant to check it out for you. The NASD requires firms to refund discounts if they were never paid. If you would like my help call toll-free 877-827-1463 or email me at jeff@guardingyourwealth.com. You can also find out more by reading the Investor Alert at www.nasd.com.

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

If you are retired or near retirement, you need to understand a major weakness of the popular Buy and Hold strategy of investing. Read on to learn what it is and how you can protect yourself.

For years we’ve been told that the only safe way to invest in the stock market is to ‘Buy’ quality stocks or mutual funds and ‘Hold’ them for the long-term. This strategy may work well for someone in their twenties or thirties, but it has the potential to severely impact those in or near retirement who depend on their nest egg for income.

Barry retired at age 55 with a healthy $750,000 nest egg. That would have been more than enough to provide for him and his wife, allow them to travel and to live their retirement dreams for the rest of their lives. Unfortunately, Barry made the mistake of following the advice of his previous broker who touted the Buy and Hold strategy of investing (B&H).

You see, B&H says that there isn’t any way to ‘time the market’. It also says that if you are not invested for even a handful of days over a 10 year period, that it can significantly reduce your return. Therefore, it’s reasoned, you should stay invested and just ‘weather’ the difficult periods when the market declines in value. “It will come back, just hang in there,” its proponents argue.

This defies common sense. It’s like telling one of my daughters to wear her bathing suit all winter and to stay outside by the swimming pool, because the hot weather will come back next year!

Barry found this out the hard way. After 3 years of staying out in the cold his $750,000 retirement savings were only worth $350,000. His and his wife’s dreams of traveling and enjoying a comfortable retirement were gone. He has been forced to go back to work, hoping to retire again in 4 years.

The reason that B&H doesn’t work well for seniors is because it assumes you have the time to recover from a severe market downturn. But few realize the implications of this belief.

For instance, if you invested $100,000 in the S&P 500 index on January 3, 2000 it would only be worth $62,626 on December 31, 2002, three years later. That’s a loss of almost 38%. “But hang in there,” the B&H strategist says. “It will come back.”

Well, let’s look at that. Assuming a constant 10% annual return, it would take an investor almost 5 years to recover what was lost. A constant 7% annual return would require 7 years to reach $100,000.

So the B&H investor would have to forgo any income or use of that money for 8-10 years and still would only have their original investment! Are you willing to leave your money untouched for 8-10 years and come away with the same amount you put in? I doubt it. That’s why the B&H strategy can be dangerous.

I believe strongly in investing in the stock market. Even someone who is retired should have a portion of their money protected against rising prices—something the stock market does well. It is vital, though, that seniors employ certain safeguards.

To keep from repeating Barry’s mistake, you need to determine the maximum amount you are comfortable losing. For instance, if you are investing $100,000 perhaps you set a ‘floor’ at $90,000. If your portfolio declines in value to the floor amount, you take action. That way you know you only have 10% of your portfolio at risk

The second point is to make sure this ‘floor’ rises as the value of your portfolio rises. If your portfolio goes up 15%, you’ll want your floor to increase 15%, too. This will help you lock in your gains along the way.

If the value of your portfolio approaches your ‘floor’, determine why. Then sell the investments that are the cause of the drop and reallocate that money somewhere else, based on your situation, risk tolerance and what’s going on in the market and economy.

Find out more about the dangers of the Buy and Hold strategy of investing and the steps you can take to protect yourself by visiting www.guardingyourwealth.com or by calling 1-877-827-1463.

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Just as in nature, there are seasons in the world of investing. Recently, the investing climate has changed considerably. Recognizing those changes and adjusting how your money is invested can dramatically improve how much you will earn in 2004. Read on to find out what I recommend to my Private Wealth Management clients.

First, let’s examine the changes in the interest rate environment. Interest rates have been steadily declining since the early 1980’s. A client recently told me how he bought a home with an interest rate of almost 18%–and was glad to get it! Now, homebuyers are borrowing money at less than 6%. When I started in the industry back in 1987, I remember offering 30-year government agency bonds paying 12%. Now a 30-year Treasury bond yields 5%.

The long-term decline in interest rates over the last 20 years has resulted in rates that are at 40 year lows. The next trend is going to be for interest rates to rise. I don’t expect them to jump up overnight, but to rise slowly over the next several years.

As interest rates decline, the value of an investment in bonds increases. Those investing in bonds and bond mutual funds over the last 20 years have been handsomely rewarded. But the opposite will occur over the next 10 years. Those who continue to invest in bonds and bond mutual funds are going to find their return significantly lower than what they are used to.

Once considered a safe and stable investment, bond investors will be at increased risk of falling behind. It is likely that those investing in bonds could have an annual return of 3-4% or less. You should reduce the percentage of your portfolio that is currently allocated to bonds. I am currently recommending only 20% of my conservative clients portfolios be allocated to bonds.

I am recommending that my clients turn to real estate based investments for that portion of their portfolio designed to provide stability and income. Real estate does not react to changes in interest rates the same way that bonds do. In particular, I am recommending that my clients allocate 20% of their portfolios to a combination of public and private Real Estate Investment Trusts (REITs). These should provide an income stream of 6%-8% per year plus some additional capital appreciation.

It is important that caution be exercised when investing in REITs. There are many different areas of the real estate market in which you can invest including retail shopping centers, malls, office buildings, warehouses, condos or apartments. Each comes with its own set of risks, but properly managed REITs should be an important part of any portfolio.

Now, let’s take a closer look at changes in the stock market. Stock investors have just been through 3 terrible years of losses from 2000 through 2002. This has caused many investors to flee stocks for the relative safety of bonds. But the economy has now turned the corner; businesses are recovering, and the markets should continue to do well over the next few years. I am recommending that my clients increase the percentage of their portfolios allocated to the stock market in 2004 to 50%.

Investing in the stock market can be volatile, so it is vital that you take steps to protect yourself. My firm has developed a portfolio management and protection system so revolutionary that we are patenting several aspects of it. I will share more about it in a future article, but those investing in the stock market need to learn from the past. The times of buying a stock or mutual fund, throwing it in the drawer and forgetting about it are over.

I recommend my clients keep the remaining 10% of their portfolios available as an emergency reserve and as money that will be available to take advantage of unique opportunities as they arise.

Remember, the individual investments you choose are vital to your overall success. Unless you have a trusted advisor actively watching your portfolio, don’t just throw it in the drawer and forget about it.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

I’ve received a number of responses from my articles pointing out the problems with variable and equity-indexed annuities. Folks who call or email often ask the same question: “Why not lock up my money? I’m not going to use it anyway.” Agents try to convince you that it’s good to lock up your money for 7, 10 or 15 years since you won’t be using it anyway. This argument is complete hogwash, and let me show you why.

First of all, the only reason, and I mean the only reason these advisors are asking you to lock up your money is because of the commission structure of these annuities. That’s how the insurance company makes sure they can pay brokers commissions of up to 15% on these investments. If you want to know how much your agent is earning off of your money, just take a look at the surrender penalty. It almost always equals the commission.

Just look at the underlying securities you’re investing in when you buy a variable or equity indexed annuity. They work just like mutual funds or index funds, don’t they? What if you were to purchase a mutual fund or index fund instead of an annuity. Would you have to lock up your money for 7 to 10 years then? Of course not! You’d be able to liquidate that money at any time at its current market value, without paying onerous surrender penalties. Locking up your money in an annuity is for the agents benefit, not yours.

Now that you understand that agents want you to lock up your money because it impacts their paycheck, let’s look at the other side of the “why not lock it up” argument. You say that you aren’t going to use the money anyway, buy how can you be sure? How do you know you won’t need that money?

Let me give a real life example. I have a client whose mother had a large portion of her portfolio invested in an equity indexed annuity. She wasn’t going to use that money anyway, she thought, so why not lock it up and at least get a small, but guaranteed return?

Unfortunately, soon after, she developed Alzheimer’s and she had to move to an assisted living facility. Her annuity had a nursing home clause, which meant money could be withdrawn to cover nursing home care without incurring a surrender penalty. But she wasn’t sick enough for a nursing home. So now, either her kids will have to pay $10,000 a month to cover her care, or she will have to pay steep penalties to get her own money. Either way, the family loses, not the agent.

There are many other situations that might cause you to tap that money. Some are negative, such as the death of a spouse, long term illness or needing to help a child going through a crisis. Some are positive. Maybe you decide you want to move to a warmer climate or help a grandchild pay for college. Whatever the reason, you can’t predict the future and it’s foolish to paint yourself into a corner financially when you don’t have to.

Many investors say they can’t foresee a situation in which they might want to change their investment. But wanting to change your investment is even more likely to happen than a sudden illness. Interest rates can take a downward or upward trend. The market can tank or take off. Your income needs might increase beyond what you’re currently earning. If your funds are locked up where you can’t touch them, you won’t be able to respond to these situations and opportunities. It’s like locking an airplane on auto-pilot, so you can’t navigate around a thunderstorm or take advantage of tailwinds.

Don’t fall for the “why not lock it up” argument. Remember, agents are asking you to give up your flexibility so they can earn a big commission. It just isn’t a fair trade. I am always happy to answer an investor’s questions about investments or annuities, so don’t hesitate to call. I will be happy to help you in any way I can.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

In January, I discussed my predictions for how you should invest in 2004. This article updates those recommendations in light of recent events. Read on to know how to protect your money.

Several trends have occurred over the last 4 months that could play a significant role in the performance of the stock and bond markets for the remainder of 2004. These events include the situation in Iraq, the Presidential election here in the US and the increased likelihood of the Federal Reserve raising interest rates. I will explain each of these and then look at their effect on stock and bond investments.

The handover of power from the Coalition Provisional Authority is set to occur on June 30th—little more than 60 days away. There are serious questions about who will take authority and the impact it will have on the success of democracy in Iraq. This uncertainty will impact the financial markets in the U.S.

Back in the U.S., the outcome of the 2004 Presidential election is far from certain. Senator Kerry is proposing significant changes to the way corporations are taxed, the repeal of the dividend and capital gain tax cut and the repeal of the tax cut on those earning $200,000 or more. There is concern among investors that, if elected, these changes would impact corporate profits and investors’ interest in stocks.

At the same time, the economy continues to recover resulting in the increasing likelihood that the Federal Reserve will raise interest rates sooner than expected. One major impact of rising interest rates is on what is called the ‘carry trade’.

The ‘carry trade’ takes place when financial institutions such as banks and brokerage firms borrow money at a low rate and invest that money at a higher rate. For instance, for quite some time these institutions have been able to borrow money at about 1.25% and reinvest it in 10 year Treasury Notes at about 4%, pocketing the difference. This has resulted in substantial profits for these companies.

Rising interest rates will cause these institutions to unwind these positions by selling the bonds they have invested in. The effect of this selling will be to drive down bond prices and increase bond yields.

How does this affect you and what should you do about it? That depends on whether you are invested in stocks or bonds.

Many of you may own mutual funds or closed-end funds that invest in Government Guaranteed, investment grade corporate or high-yield bonds. If you own any of these you will have seen their value decline over the last few weeks.

If you have not done so already, you may want to reduce the portion of money you have invested in bonds. For some of my private wealth management clients I am further reducing their bond allocation because of the risk of loss in these investments.

For those that own stocks or mutual funds that invest in stocks, the returns on equities this year may not be as high as you thought while their volatility may increase. For instance, my firm is still anticipating an 8% return from equities for all of 2004. It’s possible that won’t be achieved.

If you are retired or near retirement then you will want to keep an eye on your stock-oriented investments. This is not the time to throw your investments in the drawer and forget about them. If you are uncomfortable with your investments declining in value, determine the level at which you would take action to prevent additional loss. If that level is reached, sell the investment and wait for conditions to improve.

Regardless of whether you own stock or bond oriented investments, you should reduce your short-term expectations. And don’t panic. These are short-term events that should straighten themselves out over the next 6-12 months.

Lastly, many investors are taking the drastic step of locking their money in Equity-Indexed Annuities for 10-15 years because they fear additional losses. Don’t make a long-term investment decision based on short-term events—especially when you won’t have the ability to change your mind without losing a significant portion of your investment through surrender charges.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Recent actions by the Federal Reserve will have a big impact on the interest rates paid on investments. Their actions mean you may need to use a different strategy if you depend on your investments for income! Read on to find out how you can boost your income with little risk, but only if you are patient.

The Federal Reserve increased the interest rate banks charge each other for the first time in four years. Sure, the modest increase from 1% to 1.25% may not seem like much, but it signals a major shift in the Federal Reserve’s handling and perception of the U. S. economy.

Interest rates are the tool the Federal Reserve uses to encourage economic growth and to keep inflation under control—similar to the brake and accelerator on a car. Over the last 4 years the Federal Reserve has been pressing the economic accelerator by moving interest rates to 46-year lows. And it worked.

The problem is that the faster the economy grows the more risk there is of inflation. So, in an effort to keep the growth on the right track, the Federal Reserve has tapped the brakes by slightly increasing interest rates. The economy is strong and the Federal Reserve is expected to continue modestly raising interest rates over the months and years ahead.

That is good news for income oriented investors. But you must be patient.

Bank Certificates of Deposit (CDs) are my bond investment of choice right now. They yield more than Treasury bonds and about the same as corporate bonds that have more risk. But don’t be in a rush to lock your money up longer term, because the interest rates look better than they have in years.

It doesn’t make sense to lock your money up for long periods of time when interest rates are going up. For instance, in just the past two months, interest rates on 1-year CDs have jumped from 2% to 2.4%. So by just waiting 2 months, you could have increased in your interest income by 25%.

Right now the Federal Funds rate is 1.25%, but the futures market is predicting that it could be as high as 3% by the end of 2005. That means the interest paid on 1-year CDs then could be twice as high as it is now. It is likely that by the end of next year you will be able to earn 4%, 5% or even 6% on ultra-safe Certificates of Deposit.

So if you are an income-oriented investor, now is the time to use short-term investments. But be patient. Don’t put all of your money to work right away. The safest way to invest in this environment is to ‘ladder’ your maturities.

For instance, if you have $300,000 of your investment portfolio allocated to bonds, divide it into two portions. Invest $150,000 in a 6-month CD and the other $150,000 in a 1-year CD. Each time one matures, you reinvest that money into another 1-year CD. That way you have a portion of your money coming due every six months and can reinvest it at a higher rate. It’s a wonderful way to ride the tide of rising rates and maximize your returns.

Another great deal right now can be found in municipal bonds. For instance, municipal bonds with a 5-year maturity are currently yielding around 4.9%, whereas a 5-year Treasury Note is only paying 3.9%. Plus, you don’t have to pay Federal Income Tax on the interest earned on municipal bonds. The Treasury Note would have to yield over 6.7% to give you the same amount as the municipal bond after taxes assuming you are in the 27% tax bracket.

Although I have used mutual funds that invest in bonds in the past, I am not using them now. In fact, I have moved all of my client’s money out of bond mutual funds over the last 12 months. As interest rates rise, I will be putting that money back to work using short-term Certificates of Deposit or municipal bonds.

So be patient. Divide your money between 6-month and 1-year Certificates of Deposit. Avoid tying your money up for more than a year. That way, you will be able to ride the rising interest rate wave and see your income safely increase.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com