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This month's topics include revisiting the tried-and-true investing strategy of buy-and-hold; fixed-income options for retirement; asset-protection strategies; and how cognitive bias can stock portfolios. Catch up on financial advice from Dentistâ€™s Money Digestâ€™s team of experts.
Buy-and-Hold: What’s Old is New
Sometimes a classic perceived as obsolete just needs some freshening up. This is true of the buy-and-hold strategy of stock investing. The idea is to assemble a diversified stock portfolio, and then leave it alone for years. You build wealth over time and minimize exposure to market volatility. As the classic strategy advocates, you buy a core group of companies and hold them for 10 to 15 years. What’s different is that today, you should have a group of satellite stocks that revolve around the core group and are changed more frequently.
Fixed-Income Investments: Not Just Bonds
When looking for fixed-income investments to fund your retirement, don’t forget about fixed-rate annuities. You get a set rate of interest for a set period of time, usually three to 10 years. Annuities, unlike bonds, are not subject to rate fluctuation. The insurance company bears all the underlying investment risk, protecting owners from market volatility.
The Right Time to Plan for Asset Protection
Truthfully, the right time to come up with your asset-protection strategy was yesterday. Most doctors don’t even think about asset protection until after a lawsuit has been filed. Don’t be like most doctors. Laws vary from state to state, so you’ll want to check with your CPA or CFP, but in general there are three basic asset-protection structures: 1) retirement accounts: the easiest and most tax-advantaged way to shield your assets from creditors; 2) domestic asset-protection trusts: in 16 states, anyone can set one up, even nonresidents; 3) annuities and life insurance: did we mention annuities? All of these aforementioned vehicles will allow you to shield assets from creditors, with the limit dependent on the rules of the state involved.
How You’re Messing Up Your Own Portfolio
Just because conditions in the market created a recent downturn or upswing doesn’t mean those conditions are here to stay. But the cognitive bias of recency makes us think that they will. We’re all prone to pay undue attention to recent news, either good or bad, and underemphasize long-term trends. Performance in the recent past is arguably the least useful information about an investment. But while recent performance data is easy to understand and dramatic, it’s not necessarily accurate.
-- Eric C. Jansen, ChFC; Ken Nuss; Trey Smith, CFP; and Benjamin Sullivan, CFP, contributed to this report.Discover more Dentist's Money Digest Personal Finance coverage here.