learning center

Robert Hunter Registered Investment Advisor is now
Marin Wealth Advisors .
Please visit us at our new financial services web site.

Investor Information Articles

Making Smarter Investment Choices in Your Retirement Accounts:

fresh ideas

Asset Allocation in Unstable Financial Markets

Markets have rallied strongly off of their lows in early 2009 on the back of bank bailouts, some financial market re-regulation and a firming in the economy. We are still faced with high and rising government debt levels, a weak economy and high unemployment. Allocating retirement assets in this environment requires a calm mind. You want to participate in upward trending markets and sectors, avoid potentially dangerous markets, and hedge along the way.

Here are a few tips:

  • Most growth seems to be related to business in Asia, especially China and India, and South America, especially Brazil. You can buy U.S. and European companies doing the bulk of their business in these economies however, investing in these local markets is also a hedge on a declining U.S. dollar.
  • Hedge against potential inflation and lower bond prices by shortening maturities in your bond investments.
  • Dividend stocks, especially those with consistently rising dividends, lowers volatility in your stock investments.
  • Cash is not trash. Always have some cash (money market or “stable value” funds) on hand in your retirement accounts. Cash reduces volatility and empowers you to take advantage of bargain basement prices, when they appear.
  • Although precious metals are currently tracking the market up, in times of extraordinary financial stress precious metals provide a hedge against declining markets.

Choosing Mutual Funds from a Limited List

Most of us have to choose mutual funds from the limited list provided by our employer sponsored plans. Here are some tips on choosing your funds:

  • Domestically, most growth comes from small and mid cap companies. Big growth funds with multi billions in assets under management have to buy big companies. When choosing a growth fund try to choose smaller growth funds and review their portfolios for small and mid cap companies.
  • Value should mean dividends, dividends, dividends. If you’re going to buy large company value fund make sure it is made up exclusively of dividend paying stocks. Aside from generally lower volatility, dividends also provide some evidence that management is working for shareholders.
  • Bond funds should be diversified too. Most plans offer an inflation protected bond fund as part of their menu. Combine inflation protected bonds with short, intermediate, and to a much lesser degree, long term bonds.

How to Interpret Performance when Choosing Funds

You need to know how to interpret performance charts. The most common breakdown is 1, 3, 5 and 10 years. You’ll want to compare each of these time periods relative to major market trends. For instance; markets peaked in the fall of 2007, just a little over three years ago, experienced a nasty decline that bottomed in March of 2009, and is now, 20 months later, trading at this year’s highs.

  • When looking at one year performance what you’re really looking at is whether or not the manager is in sync with the current market dynamic. Markets rotate through industry sectors relatively frequently, and managers who anticipate these rotations will outperform markets in the current environment. (Be careful you’re not looking at a sector fund that happens to be enjoying its moment in the sun.)
  • Performance in the three year time period is a measurement of nimbleness and consistency, probably over a couple of market cycles. Right now it would be an indication of how well a manager managed through the decline and subsequent rally we’ve experienced since the fall of 2007. I would also review the annual performance for 2007-2010 to see how they managed through the downturn and how they managed during the recovery.
  • Five and Ten year relative performances are of course, strong measures of management consistency. Five year outperformance is a very good sign of a solid management team, although checking each year’s performance is solid proof of consistency. After 10 years the management team may have experienced a substantial turnover, and consistent outperformance in this time frame probably indicates a very robust organizational screening and training policy for new managers.

Return to Article Index