Wealth Management Insights
Are you thinking strategically enough about the year ahead?

January 2010
 
 
Dramatic changes in the markets have knocked many financial plans off course. Early 2009 saw many investors shift to more conservative postures, and more recent rallies have had some chasing various hot stocks and sectors on the road to recovery. The start of the new year, when people have an opportunity to review year-end statements from their investment accounts and have begun to receive tax documents, represents a perfect time to revisit financial plans and make sure they are aligned with your goals.
What you should know:
1.
Asset Allocation Is Fundamental
If your investment decisions have been made primarily in reaction to what the markets have done over the last year, your current asset allocation is probably very different than the one you originally established with your Financial Advisor. Key points to remember about asset allocation include: Diversifying y •• our investment holdings across various investment types with low correlation (stocks, bonds, commodities and cash can all behave differently under different market conditions) can help reduce overall volatility in your portfolio.
  • Diversifying your investment holdings across various investment types with low correlation (stocks, bonds, commodities and cash can all behave differently under different market conditions) can help reduce overall volatility in your portfolio.
     
  • Know what you hold. Even if you are invested in several different mutual funds, those funds may hold many of the same or similar investments, inadvertently creating higher correlation or more concentrated positions for you.
     
  • Look at the investment strategies behind your managed investments and consider employing managers with different philosophies and styles to further diversify your holdings and reduce correlation.
2.
 Keep the Big Picture in Perspective
Take a long view. Especially in 2010, looking back 12 or even 24 months may not provide an accurate representation of an investment’s long-term track record or potential future value.
  • Making or holding an investment under the assumption that recent performance will continue can be dangerously unreliable.
     
  • The goal in selecting a manager should not be to find one that has already performed well, but one with the greatest prospects for future success.
     
  • For investments like mutual funds and separately managed accounts, management style can dramatically impact performance over time and under different market conditions. Speaking very generally, active managers tend to perform better in bear markets while passive managers tend to outperform in bull markets.
     
  • Thorough due diligence performed by a specialist with deep industry knowledge and access to long-term data is the most reliable method of selecting a manager.
3.
 Plan What You Can
Some events that can influence your investment performance don’t have the courtesy to warn you in advance. But there are things you can account for ahead of time that can make a difference to your financial plans and portfolio performance.
  • Mutual funds are required to distribute to their investors the gains they’ve earned during the year. If you purchase the fund before its “ex-dividend” date, you will receive, and have to pay tax on, that distribution, regardless of how long you actually owned the fund. These typically happen around year-end, so watch for that date when purchasing a new fund.
     
  • If there is a major personal event – a wedding, a birth or the start of school for a child or grandchild – coming up in 2010, you may want to factor that event into any significant portfolio decisions you make during the year.
     
  • If you’re in or approaching retirement, think about how things like Social Security benefits, required minimum distributions and Roth conversion opportunities will impact your financial picture this ear.
     
  • If you haven’t reviewed your estate plan in some time, you should look at it in light of any personal life changes and recent or pending changes in the laws regarding estate taxes and taxes onspecific investment types.
What you should do now:
Armed with the most recent account statements and an understanding of what you already know lies ahead, talk to your Financial Advisor about any adjustments that should be made to your asset allocation and financial plans in 2010 to keep you on track toward achieving your long-term goals.

Investors should consider the investment objectives, risks, charges and expenses of each mutual fund carefully before investing. This and other information is found in the prospectus. Contact your Baird Financial Advisor for a prospectus. Please read the prospectus carefully before investing.

Asset allocation and diversification do not guarantee protection against loss of principal. Past performance is not indicative of future results.
Investing in mutual funds involves risks, including loss of principal.


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