by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.
July 10, 2006
IS THIS YOUR DOWN YEAR?
BOCA RATON, Fla. -- Depending on how risky or conservative you might be, the sticker-shock of your Q2 investment statements might easily have shown your brokerage account down 3 to 11 percent from the last report.
That's why it was a bit unnerving when a single page fax arrived from a client-without a cover sheet-with bold hand-written letters asking, "How could I be losing money?"
A bit of research showed that while other people suffered deeper declines, our friend had a loss of 00.62% in his account.
Correct! On June 30th his large total return tax-deferred annuity portfolio of regularly-monitored equity and income funds had a paper loss of less than one percent.
The first bit of advice to him was to remember that these statements are literally a computer "snapshot" of account value at 4 p.m. on June 30, 2006. Within a few days the account was back in the plus column, but by the second week in July it was down slightly. Sometimes the long-term focus is the better focus.
Since inception four years ago, the client had averaged a gain of approximately 9.3 percent per year. We selected dividend-paying sub-accounts (funds) which keep cash flow moving into the account even in down market cycles. The client is considerably older than his spouse, who also benefits from a guaranteed death benefit in the annuity format.
No, it's not a panacea for everyone, but in retirement areas these downside protections are often providing peace of mind for customers.
"Am I going to have more down quarters in the future?" the client asked.
"You might," came my response, based on information from the prestigious Chicago econometrics firm of Ibbotson & Associates, which says it can identify an average of at least one down year in every four since 1926.
Yet even with the caveat that past performance can't guarantee the future, the same style of portfolio that was down less than a single percentage point for the quarter has returned more than 10 percent per year - after all expenses - for the last 40 years. It wasn't the best investment in the universe, but very far from the worst.
Patience and realistic expectations will be rewarded.