Independent Financial Advisor Provides Seven Tips To Help Adjust Investing Outlook: Mike Flower says Time Has Come for Investors to Face the "New Normal"

    LEAWOOD, KS, July 21, 2010 /24-7PressRelease/ -- There's no sugar-coating it--slow economic growth, diminished investment returns, higher unemployment, tighter credit, the threat of inflation and higher taxes is "the new normal" for investors. While facing an investment world with plenty of uncertainty and limited upside is difficult, Mike Flower, managing partner of Fairfield-based Financial Principles, LLC, suggests seven strategies to help make the adjustment:

1. Don't Follow the Herd. About every decade, talking heads tell us that the investment world has changed for good, but Flower doesn't believe it. Flower points to the "New Economy" of the late 1990s when popular opinion said technology stock valuations were no longer subject to the laws of gravity. "It's just as dangerous to think that we are in a period of diminished returns and volatility that requires us to turn our back on equities," says Flower. "It's easier to live with market uncertainty if you trade your view that 'It's different this time' for 'This is a normal secular bear market.'"

Economies have gone through major expansion and contraction cycles. They are called Secular Bull or Bear markets and the expansion/contraction generally lasts from five to 25 years as the market soars up and careens back down in a series of boom and bust cycles. If the Secular Bear's grip continues, several years of significant expansion could be greeted with another recession. Accordingly, the planning lens must change to ensure dual goals: protecting existing wealth and positioning to take advantage of the bull rallies within the secular bear market.

2. Increase Diversification. While most portfolios are split between stocks and bonds, Flower suggests the downturn has underscored that cash, too, is a valuable asset class. "Investors looking to mitigate risk by diversifying further might also include commodities, gold and real estate or other alternative," says Flower. The traditional relationships between asset classes have changed and therefore portfolio adjustments may be in order. In the increasingly global economy, domestic equities and international equities are tracking closer together, decreasing the diversification benefit.

3. Think Locally, Invest Globally. Some believe that as government debt soars the US dollar will lose its role as the world's reserve currency. At the same time, growth is occurring in the developing world, specifically in emerging markets like India and China. "While conventional wisdom has suggested investing a maximum of 25 percent of your stock portfolio abroad, it may be time to increase that allocation, especially given that approximately 60 percent of the world's total stock market value lies outside of the US," Flower says. SOURCE:
http://publications.fidelity.com/investorsWeekly/application/loadArti ... ernational

4. Get Portfolio Active. "Regardless of what asset classes you own, investment returns likely will be lower," says Flower. "That means being in the right place at the right time is more critical than ever." Seeking to capture a short-lived opportunity, take gains, or avoid a potential decline may require more frequently trading their portfolio. "'Staying the course' has never meant doing nothing," says Flower.

5. Spend less, save more. "It sounds very basic, but you can only control what you save and spend," says Flower. "If what you sock away is going to grow more slowly, you need to save more and if you are already retired, you may need to withdraw less." He cautions that when looking at household expenses don't forget costs, which can diminish returns. In addition, taxes can take a heavy toll on retirement savings, so Flower says it's important to ensure that investment plans are as tax efficient as possible. When switching jobs, if a 401(k) account balance is $5,000 or above the money can be left within the former employer's plan. Other options include rolling the funds into your new employer's plan, a traditional IRA, or converting them to a Roth IRA, which can offer tax-free growth potential and withdrawals. "Any of these options is better than cashing out the account," Flower says.

6. Manage risk more tightly. "Although diversification can be an effective risk management strategy, dispersing your eggs among numerous baskets didn't work in 2008 and 2009," says Flower. "The approach of diversifying once and then adopting a buy and hold philosophy needs to be supplemented with much more responsive risk management." Flower suggests considering constructing a portfolio where just part of it is held for the "long term" and carving out a percentage that is managed more actively to capitalize on emerging opportunities. "Once you set your ideal asset allocation, you may need to rebalance more frequently to maintain it, perhaps two to four times a year."

7. Remain an investor, not a trader. "You can't win trying to time the market," says Flower. "But there are three reasonable ways to potentially profit from market volatility: First, stick with your investment plan and review it at regular intervals, so your portfolio isn't as impacted by market highs and lows; second, keep some cash for opportunistic bargains; and third, if you decide to exit the market, first construct a plan that outlines how and under what conditions you will re-enter."

While the past few years have been challenging for investors and more challenges are likely ahead Flower urges "step up your portfolio's defenses but don't give up on the prospects for growth from a well-diversified, well-tended portfolio."

About Financial Principles, LLC
Financial Principles understands the importance of planning - whether it's for retirement, saving for college or even charitable giving. Two senior partners, Bradley H. Bofford, CLU, ChFC, and Mike Flower, bring a combined 30+ years of financial services experience to their clientele. Both are recognized as qualifying life members of the prestigious Million Dollar Round Table, "The Premier Association for Financial Professionals". As representatives of Securities America, Inc., Bofford and Flower are able to provide comprehensive services and advice in all areas of personal finance, such as estate planning, retirement planning and tax reduction strategies.

Bofford and Flower believe that a well-informed client is essential for success. They love taking clients from fear to confidence regarding finances, by placing a strong emphasis on educating people about how to prepare for and enjoy a comfortable retirement. Both advisors have contributed to articles in several leading trade publications including Investment News, Financial Advisor, and Research magazine as well as consumer outlets such as BusinessWeek, Money and New Jersey Business magazine. Visit www.financialprinciples.com to learn more about the advisors at Financial Principles.

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