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Seven Investment Strategies for 2012

By WealthTrust Arizona

The dawning of a New Year always brings uncertainty. After all, no one can predict the future with 100% accuracy and, if the past couple of years have taught us anything, in 2012 world events and the financial markets will almost certainly combine to create scenarios and outcomes no one could possibly imagine right now.

The financial experts at WealthTrust Arizona have developed five suggested recommendations for dealing with your investments in 2012.  “Simply put, two recommendations emerge,” according to Don Bertrand, Vice President and Senior Financial Advisor at WealthTrust Arizona. “Have faith in equities, control your emotions and be alert for opportunities to plan against changes in tax law which may be coming in 2013.”

In the end, one overriding message comes through: invest for the long term. “While you should always pay attention to the global political and economic situation, you should also be resolute in your investment convictions,” according to Bertrand. “Do not let your emotions dictate your investing behavior. Historically, investors who change their investment strategy based on sudden moves in market behavior do much worse than those who make a choice and stick with it.”

Below are the seven suggested investment strategies for 2012 from WealthTrust Arizona:

1) Prepare For Possible Change in Estate Tax in 2013

Unless Congress intervenes in the next 12 months, in 2013 estate tax law will revert back to a $1 million exemption and a 55% tax rate. That means the coming year will present you with a unique opportunity to structure your estate plans so that, after you are gone, your heirs will end up paying the least amount of tax allowable by law on your estate. “You should consider taking advantage of historically low interest rates to provide low-interest loans to your adult children, as well as funding grantor retained annuity trusts, which are known as GRATs,” according to Mike Bowen, Senior Financial Advisor for WealthTrust Arizona. “If you do not plan in advance, you could end up paying more to the IRS than you need to, rather than to loved ones or a favorite charity.”

2) Take Advantage of Roth IRA Recharacterization Rules

If you converted your IRA to a Roth IRA in 2011, you might want to take advantage of what is called “recharacterization.” One reason to recharacterize is a market decline. Let us say you converted your IRA to a Roth IRA when the IRA was worth $50,000. If you opted to pay all your tax up front, you were taxed on the full amount of $50,000. If the account is now worth only $40,000 due to a drop in the stock market, it might make sense for you to recharacterize to a traditional IRA, getting back the tax you paid on the conversion. If you do this, you can always reconvert back to a Roth at a later date, paying tax on the smaller amount.

3) Always Make Sure to Read the Fine Print Before Purchasing an Annuity 

While fixed annuities promise a steady income stream for life, there is an “opportunity cost.” When you lock up a large portion of your money until the day you die, you are limiting your options when it comes to using that money to participate in an attractive future investment, such as an equities rally. “A fixed annuity will not hold up well against inflation,” warns Bowen. “While they are marketed as being investment vehicles, they are usually not a good alternative to other, lower-cost investments.”

4) Consider Investments That Exploit Volatility and Incorporate Portfolio Protection

It is hard to escape the volatility in today’s market. You can actually use this to your advantage, by investing in volatility. You should do this in a way where the investment does not lose appreciation when the volatility subsides and the markets return to normal. Other risk management strategies include momentum-based sector rotation. “Remember that any risk management product should complement – not replace – any carefully designed asset allocation,” states Bertrand.

5) When Investing in Equities, Consider the Long Term

You should invest in equities up to your personal risk tolerance level, keeping in mind that you are in this for the long term. Do not allow yourself to get wrapped up in the day’s news and election-year politics and potential gridlock, allowing it to all change your long-term investment strategy. Like a good football coach, you should focus on the fundamentals, things like corporate earnings. Investing in equities is a good way to guard against the biggest threat to your financial future: inflation. Even if you are retired, inflation will most likely double or even triple your living expenses over the rest of your life.

6) Diversify, Diversify, Diversify

“At WealthTrust Arizona, we cannot stress enough the importance of having a diversified portfolio,” states Bowen. “A solid asset allocation, combined with opportunistic rebalancing to ensure your allocations stay true, is still the best way to reduce risk. You should have a well-diversified portfolio that invests across a range of equity sectors, fixed income and alternative investments. An abundance of mutual funds and exchange-traded funds (ETFs) offer exposure to a wide variety of asset classes.”

7) Avoid Investments Which Prey on Investor Fears

Understandably, investors are always looking for something to protect them when markets collapse. The best advice is to follow the old adage, “buyer beware.” Many investment vehicles which are popular during volatile times are complex, expensive and are sold based on a climate of fear. While there are many products which offer risk protection – such as such as black swan funds, puts and collars – many are limited in the benefits that they provide and some can have significant adverse effects on portfolios during normal market environments.

Typically, investors let their emotions rule their financial decisions, letting fear prompt them to exit and enter the markets at precisely the wrong times, which can harm their results. When turbulent markets and geopolitical uncertainty combine to agitate equities is the time to double down on the basics. Bertrand reminds all investors to “maintain a well-allocated and balanced portfolio that reflects sound investment principles and your long-term needs will help your investments with the ups and downs of the market.”


DISCLOSURE: WealthTrust Arizona is a fee based investment advisory firm that specializes in integrating portfolio management with estate planning for high net worth individuals and families. Services include portfolio management, estate planning, asset and lifestyle preservation, taxation concerns, access to trust and estate documentation preparation, business succession planning and more. The professionals at WealthTrust -Arizona are frequently sought out by the national media such as The Wall Street Journal, Forbes, New York Times, CNBC, BloombergRadio, and others to share their thoughts on matters that impact our clients.

Given the recent events impacting investors and their financial security, we would welcome the opportunity to provide a second opinion for anyone who would like to have a check-up on their investments, financial plan or estate plan. If you know of anyone who may have a concern with their current advisor or current investment portfolio, we encourage you to share our contact information with those that could benefit from a complimentary review.

Advisory services offered through WealthTrust Arizona, a registered investment advisor. WealthTrust Arizona does not engage in the trust business in the state of Arizona or in any other jurisdiction. Not FDIC insured. Not bank guaranteed. May lose value, including loss of principal. Not insured by any state or federal agency.


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