Investing Steps for Selecting Your Retirement Plan

Investing Steps for Selecting Your Retirement Plan Investment Options
The first step is to make a commitment to set aside some time each week or possibly month to review the market and your investments. We would suggest 15 minutes or so each weekend. To preserve and grow your assets, you need to watch them like you would a garden. Neglect of either can create big disappointments.

You need to review your retirement plan options to see which ones you’re going to follow. You should select at least two or three:

1. Cash/money market or short term bond fund should always be one of your choices.

2. One or two income funds of some kind. An investment grade bond could be a start.

As your portfolio grows an equity income, balanced or good yielding allocation fund would be beneficial for long term accumulation. Growth funds need to be sold in order to preserve profits. Income funds can be held to buy more shares with the dividends they pay. If one of your choices is a S&P 500 Index fund, you can judge the direction of the market in addition to using it for one of your investment choices. Put the profits from the income fund into your income funds.

In order to determine the direction of the market and your investment options, you’ll need a way to compare where things are in relation to where they have been. You need to know whether your investments are going up or down. Many people look at the year to date (YTD) percentage gain or loss of their mutual funds, or stocks. Year to date percentage can be used to determine whether you should be in or out of a fund. If you keep track of the YTD percentage you watch to see if that percentage is going up (profits) or is going down (losses).

If you write down the YTD percentage and compare it with the percentage calculated in a journal weekly, you will know the trend of your funds. If you also write down the YTD and price of the S&P 500 Index, you’ll also know the trend of the market. Those two percentages and prices can help you make your investing decisions.

Your Company’s Plan Rules
We suggest weekly reviews but some company plans and mutual funds have rules preventing sales until 60 or 90 days after you buy. You may only check prices once a month regularly. You may only check when you notice the market has had a dramatic move up or down. If you can’t sell for a restricted amount of time, you will need to take that into account during your initial purchase. The longer you have to wait to sell, the bigger a correction you will need before you buy as a margin of safety for profits. For example, you may wait for the market to go down 10% or 15% or more before you put a major percent of your assets in the market.

Monthly Investment Considerations
You need to decide which investment options to invest in each month. You should think about how to invest in different kinds of markets. In long term rising markets like we HAD, growth and international anything and letting it “ride” was fine. In the trading range erratic markets we are likely to have in the next few years, trading, income and value will probably serve you better.

We would suggest that you trade growth and accumulate equity income and/or bonds. This means putting money into a money market or short term bond market with the intention of trading part of your portfolio in the big rallies that come along. This is the most likely way to preserve your assets and get some nice gains (that have to be sold as the market or fund peaks in price).

As long as the Federal Reserve keeps the economy flowing with money, some speculative funds (emerging growth, high yield or erratic growth stocks in funds) can be considered. We would suggest 15% to 20% or less of your portfolio would be into speculative areas. We like equity income with generally rising dividends because they are a good way to offset inflation over time and these stocks perform better over time.

Reversals
You need to remember most stocks and funds will follow the market up and down. The percentage they follow is different depending on what type a stock it is. Big cap dividend paying stocks usually don’t go up or fall as much as others. They are also the ones that recover the quickest. Small and speculative stocks decline the most, and sometimes never come back. Since most stocks and funds go up and down with the market, the first thing you need to know is whether the market is going up or down.

A way to do that is to watch the YTD percentage of the S&P 500. The market and investments trend up for a while before they start to go down. When they start down, the trend direction has REVERSED. It is the reversals you need to watch for. You can tell whether the trend has reversed by watching the YTD percentage.

Part of your investment plan should be to decide when you plan to buy or sell. You should act after a reversal has occurred. You PICK what percentage you will take action. If you want to trade and get profits faster, you should pick a percentage between three and five percent. If you just want to protect investments from major corrections, you should pick a percentage between nine and twelve percent.

This reversal is your first alert to take action. You may choose to do nothing because you have other indicators that can be overriding. These could 50 be and 200 day (or week) moving averages and trend lines showing support and resistance areas. These indicators can help judge how quickly and at what specific price areas you will need to act and how much of the portfolio you may want to act on. Sometimes you will sell or buy large percentages of the portfolio. Other times, you’ll accumulate or dispose in smaller percentages. We will explore these indicators later in an article titled, “Your Own Personal Technical Research Department”.

If you only want to use your written YTD percentages and prices, you can. Once the market reverses, you will want to review your own investments. It is possible your funds don’t need any action but it is good to check.

What to Watch For:
We believe in confirming indicators. They give an additional view of the situation. You can have a second view with the YTD. Compare the YTD percentage of the market to the YTD percentage of your fund. If your fund’s YTD is above the market by 5% (example, YTD is 116%) , it is outperforming it. If your fund’s YTD is below the market by 5% (example, 91%) it is under performing it. If your fund’s YTD is under 5% on either side (examples YTD of 96% or 103%), it is performing in line with the market.

If you’re trading, you’ll want funds out performing the market, if you’re accumulating longer term dividend paying positions, you’ll want funds under performing the market. If the difference between your fund’s YTD and the market YTD decreases (example the YTD difference was 3% and drops to a 7% difference), it is a sign of weakness and possible future declines. The reverse is true if funds’ YTD difference increases over the market (example YTD difference goes 5% to 11% difference), it is a sign of strength and possible future gains. The difference between the YTD percentages is an easy way to measure relative strength.

A Review of Steps:

• Make the commitment to yourself to set aside time each week or month to review your retirement plan to have a better financial future.




• Make an investment plan, including when you are going to buy, when you are going to sell, and what investment choices you are going to use. You also want to write down the percentages you are going to use to trigger your reversal points. You may want to do this with someone you trust.




• Pick investment options that are good for you.