Now is a good time to examine what’s in your portfolio.

www.youtube.com/watch?v=D52wT6OXgyw

The stock market is unsettled … and perhaps its fluctuations are unsettling you. It’s a stressful time for the economy and Wall Street, and you may be concerned about your portfolio given what’s going on with oil prices, the real estate market, and rising unemployment figures. It may be a good time to review how your assets are invested.

Is your portfolio balanced? A balanced portfolio may help you ride out stock market turbulence. Stocks and mutual funds aren’t the only asset allocation choices you have, and you won’t be alone this winter if you decide to examine other investment options.

Fixed annuities and Treasuries become attractive to investors when the market turns volatile. Bonds tend to maintain their strength when stocks perform poorly; fixed annuities are simply contracts with insurance firms, not correlated to stock market performance (though certain types of annuities may enable you to take advantage of stock market gains while maintaining your principal). Fixed-income mutual funds, dividend income funds and bond funds also have their adherents.

Last but not least, you have cash, though cash holdings haven’t traditionally performed anywhere near the level of the stock markets.

Are you retired, or retiring? If you are, this is all the more reason to review and possibly even revise your portfolio. Frequently, people approach or enter retirement with portfolios that haven’t been reviewed in years. The asset allocation that seemed wise ten years ago may seem foolhardy today.

Often, people in their fifties and sixties feel they need to accumulate more money for retirement, and that feeling leads them to accept more risk in their portfolio than they should. In the absence of a salary, however, you’ll likely want consistent income and growth, and therein lies the appeal of a balanced investment approach designed to manage risk while encouraging an adequate return.

Why not take a look into your portfolio? Ask your financial advisor to assist you. You may find that you have a mix of investments that matches your risk tolerance. Or, your portfolio may need minor or major adjustments. The right balance may help you insulate your assets to a greater degree against financial ups and downs.

These conservative investments have become a popular alternative to bonds.

www.youtube.com/watch?v=zrupQKSW5VE

Fixed indexed annuities can be very useful investments. As the name implies, FIAs are fixed annuities linked to the performance of a stock market index (often the S&P 500). Because of this stock market exposure, they can sometimes bring conservative investors very nice returns – often, considerably better returns than CDs, bonds, or money market accounts. They really aren’t designed to outperform the stock markets; they are designed to outperform the fixed markets.

During the accumulation phase of an FIA, you have the opportunity to benefit from stock market gains while your principal is protected against stock market losses. The annuity contract usually guarantees you a minimum rate of interest on your purchase payments while the annuity is growing; the insurance company involved will credit you with either the minimum return stated in the contract or a return based on the performance of the linked index.¹

If you are skittish about stock market investment, you can potentially realize the benefits of stock market participation through this comparatively low-risk investment.

Now each FIA has a particular participation rate. The participation rate signifies the percentage of the invested assets within the annuity keyed to the linked index.

Let’s say you have an FIA linked to the S&P 500 and the participation rate is 60%. That means is the S&P finishes positive you will receive 60% of that gain. If the S&P 500 gains 10% across a year, this means your annuity gives you a 6% return for the year. Compare that 6% potential return to so many CDs and money market accounts which generate a pittance of interest.

Some FIAs measure an index’s gain on an annual basis, others over the entire term of the annuity. Sometimes there are “ceilings” on just how high a return you can realize. From time to time, participation rates may be reset by the insurance company. Occasionally, a margin or “spread” determines the index-linked interest rate instead of a participation rate. In this case, if your annuity gains 10% and the spread is 2.5%, your credited gain is 7.5%.²

Most FIAs give you all the features of a fixed annuity: your earnings are not taxed, and when the distribution phase of your annuity starts, you can receive periodic (usually monthly) income payments. (Sometimes you can take the entire value of your annuity as a lump sum at the end of the contract term. It is your withdrawals of any gains that are taxed.) There is often a guaranteed minimum death benefit payable to your beneficiary when you pass away.

Another Key Feature is there is no annual contribution limit. If you need to put away more retirement savings NOW, the contribution limits on IRAs and 401(k)s can be frustrating. Would you rather have a retirement account you can only put $5,000 or $6,000 in annually, or an account to which you can contribute as much as you want? FIAs (and other types of annuities) have no contribution ceiling, and there are no IRS-imposed income limits above which you cannot contribute.³

But make no mistake, these are long-term investments. Many of these annuity contracts are 7-10 years or longer. If you need to withdraw your money from the annuity in the accumulation phase, there is usually a considerable penalty. Fixed indexed annuities do require a long-term outlook and a long-term commitment. No to mention that the IRS says that if you take a distribution from an annuity prior to age 59 ½, you face the same 10% federal tax penalty.

Would you like to learn more? If you are planning to maintain or improve your quality of life in retirement, maybe you would like to see how fixed indexed annuities can potentially help you. If that’s the case, then give me a call or send me an email and I’d be happy to look at your situation with you.

Citations.

¹ sec.gov/answers/annuity.htm          [7/19/05]

² newsobserver.com/293/story/222312.html    [10/23/05]

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice.

What it is, how it works, and how to get started.

www.youtube.com/watch?v=6H_zzmqy3DA

If you are confused or unsure, you’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:

The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock tends to rises. If the company does poorly, the value of your stock tends to fall. The value of the stock, or the share price is determined by supply and demand. When more people want that stock, perhaps because it is doing well, the price goes up. When less people want that stock because they see less value in the company, the price goes down. That is the stock market in the simplest terms.

When you hear “The market.” Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.

Heard the term exchanging or trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.

How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.

What is a brokerage? A brokerage is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.

So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.

What is Pete Mitchell, Inc.? My company is what is called a Registered Investment Advisor, or an RIA for short, not a stock broker. Now me personally, Pete Mitchell, I am an Investment Advisor Representative of my company. Even though there are many, the principle difference between an RIA only firm and a brokerage firm (also called a Broker/Dealer) is that we do not earn a commission or charge a fee to make trades for you. We charge a fee for our investment advice.

That may not make any sense to you so let me explain.

Stock brokers typically earn a commission when they sell you a product. After you are in the product, little if any, additional commissions are paid to the broker.  This means that the stock broker does not have the same financial interest that you may have when it comes to investing.

My type of firm charges a fee based on the assets we manage.  This is a percentage of the account (typically 1-1.5%). We get paid 25% of this fee every quarter. So if your account goes down because of either what is going on in the market or some other reason, our paycheck goes down as well. So here is my question for you. Who is more likely to be concerned with what is happening with your account? The guy who got paid up front or the guy who loses when you lose and wins when you win?

It is a rhetorical question.  I think you know the answer to that.

In summary. Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.

Investment advice is offered through Pete Mitchell, Inc. a registered investment advisor in the state of California.

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice.