Email Article Print Article

Investing With Protection Part I: Reach For Double Digit Investment Returns While Protecting Your Principal.

By Roccy M. DeFrancesco, JD, CWPP™, CAPP™ - Email Editor

Date : July 11, 2006

Dear Subscriber:

If you've read any of the past newsletters I've created for Trustmakers, you know my view of Asset Protection is different than most. My view is much more global. My definition of a creditor is: “Anyone or thing that can take your money.”

This is Part I of a two-part series where I will crystallize why investing all of your liquid wealth in the stock market may not be the best way to grow your money. Part I will lay out for you the problems with traditional investments and will open your eyes to why what you've been doing for years has cost you a significant amount of money. Part II will explain a simple way for you to reach for good returns in the market, while principally protecting 90% of your money.

Who was your number one creditor from 2000-2002? How did the American public have a majority of their assets taken from them in 2000-2002? If you had any amount of money invested in the stock market from 2000-2002, you know that the largest creditor during that time frame was, in fact, the stock market.

So, if we can help clients protect their money from downturns in the stock market, we are helping them with “Asset Protection.”

What are your investment goals these days?
I would submit to you that your investment goals should be to protect principal and go for growth when you can do so in the least risky manner possible (or in a manner that meets your risk threshold).

This is not meant to bash the use of post-tax investing as a nice option for clients; it is meant to make you aware of another way to try to reach for 10%+ rates of return with less risk.

How do clients usually manage risk? By sacrificing yield when investing in CDs, money markets, and treasuries, (which are annually taxable investments), and by outsourcing risk when giving money to a stockbroker or a money manager where there is no principal protection.

Everyone likes mutual funds and invests in them with stars in their eyes. How did your mutual funds do in 2001? Look what happened to some Merrill funds when the S&P was down approximately 17%.

Merrill Lynch Mid-Cap Growth Fund–<36.6%>; Premier Growth Fund–<52.6%>; Focused Twenty Fund– <70.1%>; Global Growth Fund– <26.3%>. Mutual funds can be quite expensive (12-b1 fees, annual management fees). Mutual funds also underperform the stock market as a whole.

“The sad truth of the matter is that over time the vast majority
– approximately 80% - of mutual funds underperform the overall stock market.”
The “Motley Fool”

To say mutual funds are not consistent would be a dramatic understatement. The following is a mind-blowing example of how little we know when deciding to invest in the right mutual funds (or better yet, when to get out of the wrong mutual funds).

Top Ten Rank	Same Fund's Rank
1996-1999	1999-2002
1	841
2	832
3	845
4	791
5	801
6	798
7	790
8	843
9	851
10	793

Is it a fair statement that your broker is telling you to buy funds ranked in the top 10 because those are the “good” funds to buy at any given time? What happened to your money if you got into one of the top 10 funds at the tail end of 1999? You would have lost a bundle.

Ever go to Las Vegas? Would you play a game in a casino if your odds were 20% to win? Of course not; then why do we all put our money in mutual funds when 80% underperform the stock indexes? Because that's what we are told to do by money managers, and because we hope we will be in the 20% that do better than the indexes.

But our stock brokers really know their stuff, right?

Which of the following companies would you have been recommended by your stock broker and wanted to purchase back in July 2003?

1. Wal-Mart: One of largest companies in the world; consistent earner; pays dividends.
2. K-Mart: Just emerging from bankruptcy; big marketing tie to Martha Stewart (who was looking at jail time); no anticipated dividends.

-In July 2003, Wal-Mart stock was valued at $56.08
-In July 2003, K-Mart stock was valued at $24.20

Be honest. You and your broker would have chosen Wal-Mart all day long.

What happened?

-In July 2004, Wal-Mart stock was valued at $51.76
-In July 2004, K-Mart stock was valued at $76.80

If we are honest, do any of us really know what is going to happen with individual stocks or mutual funds? Not really. We simply know that the market as a whole will go up over time.

Many clients who want to get out of the stock and mutual fund picking game have switched to index funds with growth pegged to the S&P 500 or other indexes. Index funds are a less expensive option for some of your dollars, but there is NO DOWNSIDE PROTECTION.

What do you think? Are you thinking about how well or poorly you've done with your investments over the last 5, 10, maybe 20 years?

Would you have been better off locking in your investment returns each year so you would not go backwards in a down market?

Are you ready for a new way to invest money where 90% of your principal is protected from downturns in the market while giving you the ability to nearly double the returns of the S&P 500 in up years?

Then you need to make sure you read next week's newsletter where I will explain the very simple, yet powerful, concept called the Maximizer.

If you can't wait until next week, you can e-mail info@trustmakers.com to get information on the Maximizer.

Roccy M. DeFrancesco, JD, CWPP™, CAPP™

RELATED ARTICLES:

• Managing Asset Protection Offshore
• Making the Most Out of Hedge Funds That Drive Success
• Working Your Portfolio to Being Green
• Finding Better Ways to Manage Your Money