Investing Your IRA Under an Obama Presidency

Investing Your IRA Under an Obama Presidency

Whether you are an Obama fan or an Obama opponent, since he has become our newest President of the United States his policies will have an affect on the financial markets, both
domestically and internationally. He wants to bring change to the United States which by extension means world markets because we have such a huge economic foot print.

With Barak Obama as President and the most powerful leader in the world, how should you structure your investment portfolio - both your taxable portfolio and your 401(k) or IRA, etc.?

1. Taxes definitely matter: With all the spending that is going on, eventually taxes will go up. That seems to be a given. How much and who will pay are the only questions that remain. If your capital gains rate goes from 15% to 25%, it doesn't take a genius to realize that there will be a lot less to either spend or reinvest after taxes are paid. A dividend rate of up to 35% has been floated by the Obama folks - although not much has been said lately because they are all too busy trying to spend trillions of dollars to hopefully turn the economy around. Good luck on that. It it
weren't for the fact that so many municipalities are going broke (or at least they claim to be), tax free municipal bonds would be a good addition. Be sure your Advisor is implementing solid tax management with your portfolio. Tax managed passive mutual funds (like index funds) have an
extremely low tax impact.

2. Capital Markets Work: There will be those gurus who will tell you they know which sectors or industries will boom under Obama and which will tank. Academic studies have shown over and over again that such attempts to combine stock picking with a market timing element almost never outperform the broad market (in fact they generally under perform) and when they do it is usually nothing more than luck and is thus not repeatable. Markets are essentially efficient and
any attempt to regulate trade or change tax policy will end up being priced into the securities as soon as the information hits the wires.

3. Diversification is Key: The way to consistently win under an Obama Presidency is to hold very broadly diversified, global, low cost, asset class mutual funds. Diversification reduces uncertainty. If you hold a mutual fund of US securities with about 3500 stocks in it and one of them happens to be a Bear Stearns or Lehman Brothers, it will
hardly make a blip in your portfolio as it goes out of existence. Don't be caught with concentrated position mutual funds or with individual securities. You will be carrying too much risk that you can diversify your way out of.

4. Risk level and Return level are inseparable: Over longer time periods, stocks outperform bonds, but not in all time periods. Over longer time periods, bonds outperform cash, but not in all time periods. It is also true that small stocks, over time, outperform large stocks, but not in all time periods - and over time Value stocks outperform
Growth stocks, but not in all time periods. To obtain the higher long term returns one must accept the higher risk of higher performing asset classes.

5. Portfolio Structure Determines Performance: Investing your portfolio along size, value and market exposure dimensions is primarily what determines the results of a diversified investment portfolio. To increase the expected results of your portfolio, own low cost, globally diversified asset class mutual funds that are over-weighted to small and more value oriented stocks. If a 100% stock portfolio is too risky for you, add some high quality short term bonds to it to reduce the volatility - of course, it will also reduce your expected return.

In order to win the loser's game, follow academically sound investment principles will allow you to win during an Obama Presidency. Don't give in to the Wall Street marketing gurus who have proven just how effective they are at separating
you from your money, quickly and permanently. Can anybody say, Bernie Madoff?

Toni Shrader
email:
Yahoo: yhopps (Please add me to your contact list and we can chat or call each other when online).

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