Download Investing in an Uncertain Economy for Dummies (ISBN - 0470401168) PDF

TitleInvesting in an Uncertain Economy for Dummies (ISBN - 0470401168)
TagsFor Dummies
File Size6.0 MB
Total Pages386
Table of Contents
                            Investing in an Uncertain Economy FOR DUMMIES®
	Contents at a Glance
	Part I Laying a Solid Foundation
		Chapter 1 Keep Your Feet on the Ground
			Invest in Yourself
			Know Your Financial Situation
			Keep Your Emotions in Check
			Control What You Can
			Put Your Goals in Writing
		Chapter 2 Realize That This Has Happened Before (And Will Happen Again)
			Weathering Major Economic Events
			Standing Strong During Political Events
			Witnessing Global Conflicts
		Chapter 3 Plan for Life’s Uncertainties
			Keep an Eye on What’s Going On
			Motivate Yourself to Save and Develop a Plan
		Chapter 4 Protect Your Ability to Earn Income
			Make Yourself Indispensible
			Boost Your Networking Skills
			Broaden Your Skill Set
			Go Back to School
		Chapter 5 Assess Your Medical Insurance
			Know the Lingo
			Examine the Types of Healthcare Plans
			Ask Yourself Some Questions
		Chapter 6 Assess Your Disability Insurance
			The Nuts and Bolts of Disability Insurance
			Look Under the Hood of a DI Policy
			Purchase Your Policies
		Chapter 7 Assess Your Long-Term Care Insurance
			Understand the Basics: General Policy Information
			Know How You Qualify for Benefits
			Review Policy Conditions
			Select and Purchase Benefits
			Consider Inflation Protection
		Chapter 8 Assess Your Life Insurance
			Calculate Needed Coverage
			Compare Current Life Insurance Coverage to Your Calculated Need
			Pick the Right Type of Life Insurance for Your Situation
			Purchase Your Life Insurance
		Chapter 9 Take Stock of Your Current Financial Picture
			Prepare a Net Worth Statement
			Use the Net Worth Statement to Reach Your Goals
			Assess Your Current Location
		Chapter 10 Save
			Just Save It
			Decide Where to Put that Rainy-Day Nest Egg
			Make Room for More Savings
		Chapter 11 Manage Your Debt
			Avoid Bad Debt
			Dump Debt Sooner
		Chapter 12 Improve Your Credit Score
			Get a Free Credit Report
			Understand Your Credit History
			Keep the Good, Fix the Bad
		Chapter 13 Set and Prioritize Financial Goals
			Get Started
			Compare Short-Term and Long-Term Goals
			Put Your Plans in Motion
		Chapter 14 Don’t Let Your Money Beliefs Sabotage Your Goals
			Know Your Money Personality (And the Weaknesses That Come with It)
			Work to Improve Yourself
		Chapter 15 Avoid Common Mistakes in a Down Market
			Keep Cool
			Stick to the Basics
			Be Savvy
			Take Advantage of the Turmoil
		Chapter 16 Use Non-Investment Options to Improve Your Finances
			Keep Track of Your Money
			Use Automatic Payments to Take Control of Your Money
			Turn to Financial Professionals for Guidance and Accountability
	Part II Using Investment Vehicles and Accounts throughout the Economic Cycle
		Chapter 17 Include Cash Reserves: Savings, CDs, and Money Market Accounts
			Your Cash-Equivalent Savings Options
			So Which One Is Right for You?
		Chapter 18 Government Bonds: Should You Loan Uncle Sam Your Money?
			U.S. Savings Bonds: Tried-and-True
			Gimme a “T!” Treasury Securities
			Government-Sponsored Enterprises and Agency Bonds
			Does Uncle Sam Equal Risk-Free?
		Chapter 19 Decide Whether Fixed Annuities Are Right for You
			Weigh the Pros and Cons
			Choose a Payment Schedule
			Select Any Riders for Your Contract
		Chapter 20 Simplify with Target-Date Funds
			One-Stop Shopping for a Diversified Retirement Portfolio
			The Upside of Target-Date Funds
			Great Isn’t Necessarily Perfect: The Downside of Target-Date Funds
			Evaluate Your Options
		Chapter 21 Invest in Mutual Funds
			Reap the Benefits of Mutual Fund Investment
			Choose from Types of Funds
			Choose the Level of Management: Trying to Meet or Beat the Market
			Pick the Funds That Meet Your Needs
		Chapter 22 Hedge Your Bets with Variable Annuities
			Understand the Basic Variable Annuity
			Look into Riders Designed to Reduce Risk
			Get Assured Income in Retirement
			Manage Your Variable Annuity
		Chapter 23 Invest in Exchange-Traded Funds(ETFs)
			ETFs versus Index Funds: Which Should You Buy?
			Evaluate ETFs
			Develop an ETF Strategy
		Chapter 24 Diversify with Real Estate Investment Trusts
			Get to Know REITs
			Fit REITs into Your Portfolio
		Chapter 25 Consider a Separately Managed Account
			Understand What SMAs Are
			Weigh the Pros and Cons of SMAs
			Compare SMAs to Mutual Funds
			Examine the Types of SMAs
			Invest in SMAs Wisely
		Chapter 26 Invest in Individual Stocks
			Do Some Serious Soul-Searching
			Research Before and After You Invest
		Chapter 27 Invest in Individual Bonds
			Understand Bond Basics
			Climb the Bond Ladder in Uncertain Times
		Chapter 28 Hedge with Options
			Know the Options Basics
			Do Your Homework
			Take Your First Steps
		Chapter 29 Invest in Commodities
			Lock in a Price with Commodities Futures
			How to Invest in Commodities
		Chapter 30 Consider Short-Selling
			Sell High and Buy Low for Fun and Profit
			Now for the Bad News: It’s Not So Easy
			Learn the Lingo
		Chapter 31 Use Caution When Buying on Margin
			Know How It Works: Everything’s Bigger with Margin
			Understand the Details
			Recognize the Risks
		Chapter 32 Get the Most Out of Your Taxable Accounts
			Diversify Your Holdings
			Know the Different Types of Taxable Accounts
		Chapter 33 Invest in Individual Retirement Accounts (IRAs)
			Types of Individual IRAs
			Contribution Limits
			To Roth or Not to Roth
			Converting to Roth
			Nondeductible IRAs
		Chapter 34 Make the Most of Your Employer Retirement Accounts
			Know Your Plans
			Get Money into Your Accounts
			Prepare to Take Funds Out
		Chapter 35 Choose a Self-Employment Retirement Account
			Self-Employment Retirement Plans
			Decide Which Plan to Open
	Part III Demystifying Risk: Accumulating and Protecting Wealth
		Chapter 36 Understand Investment Risks
			Emotional Risks
			Threats of Inflation
			Roller Coaster: Market Volatility
			The Risk of Outliving Your Money
			The Risk of Making Investments You Don’t Understand
		Chapter 37 Sort Through an Investment’s Return
			Calculate Your Return
			Identify Good versus Bad Returns
		Chapter 38 Assess Your Ability to Absorb Losses
			Line Up Your Expectations with Reality
			Evaluate Your Risk Profile
		Chapter 39 Create a Portfolio You Can Grow and Consume
			Develop Goals with Varying Time Periods
			Create the Portfolios
		Chapter 40 Allocate Your Assets to Minimize Risk
			Combine Asset Classes
		Chapter 41 Rebalance Your Asset Allocation
			Reasons to Rebalance
			Ways to Rebalance
			An Example of Rebalancing in Action
		Chapter 42 Diversify Your Stock Portfolio by Size
			Know the Market Cap Categories
			Get the Right Mix in Your Portfolio
		Chapter 43 Diversify Your Stock Portfolio by Valuation
			Value versus Growth: Taking Lessons from History
			Find the Right Balance and Avoid Manias
		Chapter 44 Diversify Your Stock Portfolio by Country
			Get Your Feet Wet in Foreign Waters
			Decide How Much to Invest
			Diversify within Your Foreign Allocation
		Chapter 45 Diversify Your Portfolio by Industry
			Industry: A Concept of Shared Risks
			Understand the Industry Life Cycle
			Use Sector Funds to Add Exposure to an Industry
			Know How Sectors Fit into the Economic Cycle
		Chapter 46 Diversify Your Bond Portfolio
			Advice for Early- and Mid-Life Accumulators
			Advice for Almost-Retirees and Retirees
		Chapter 47 Diversify Your Portfolio with Alternative Vehicles
			Private Equity: Some Privacy, Please
			Hedge Your Bets with Hedge Funds
			Seek Diversification with Real Estate
		Chapter 48 Employ a Conservative Portfolio
			Determine Whether a Conservative Portfolio Is Right for You
			Decide Which Asset Classes to Use
			Know How Much to Allocate to Each Asset Class
		Chapter 49 Employ a Moderate Portfolio
			Choose to Create a Moderate Portfolio
			Construct a Moderate Portfolio
			Note the Historical Performance of Moderate Portfolios
		Chapter 50 Employ an Aggressive Portfolio
			Know Whether an Aggressive Portfolio Is Right for You
			Constructing an Aggressive Portfolio
			Examples of Aggressive Portfolios
	Part IV Investing for Accumulators
		Chapter 51 Save for Emergencies
			Figure How Much to Set Aside
			Handle Your Emergency Fund with Care
		Chapter 52 Provide for Large Expenses
			Buying a Car
			Getting a House
			Doing Home Repairs and Remodeling
		Chapter 53 Develop a Plan to Provide for Children
			Having a Baby
			Setting Aside Pretax Dollars for Medical Expenses
			Saving for College
		Chapter 54 Save for Retirement Regardless of the Shape of the Economy
			Buy Low: A Sale’s the Best Time to Shop
			Take Five Steps to Retirement Accumulation
			Seek More Information
		Chapter 55 Determine How Much Money Is Enough for the Rest of Your Life
			Create a Fact-Based Retirement Budget
			Limit Your Reliance on the Unknown
			Estimate Your Life Expectancy —Then Plan to Live Longer
			Make the Final Call: When to Retire
		Chapter 56 Strategies for Beginning Investors
			Pay No Attention to Timing Predictions
			Consider Costs and Index Funds
			Determine Your Asset Allocation
		Chapter 57 Investments for Beginning Investors
			Getting Started
			Matching Investment Types to Your Time Table
			Building a Foundational Portfolio
		Chapter 58 Strategies for Intermediate Investors
			Own It: Equity Asset Classes
			Lend It: Bond Asset Classes
			Risk It: Other Asset Classes for the Intermediate Investor
			Follow It: Advice for Intermediate Investors
		Chapter 59 Investments for Intermediate-Stage Investors
			Supplement Your Core Portfolio: The Satellite Approach
			Increase Your Tolerance for Risk
		Chapter 60 Take Advantage of Retirement Plan Catch-Up Provisions
			Catch Up with Age-50 Allowances
			Play Catch-Up with Special Provisions for 457(b) and 403(b) Plans
	Part V Heading into Retirement
		Chapter 61 Be Prepared to Fund Large Expenses
			Figure Out How Much You May Need and How to Get It
			Prepare to Assist Family
		Chapter 62 Consider Working in Retirement
			Note the Drawbacks
			Make the Transition
		Chapter 63 Provide for Potential Long-Term Care Expenses
			Improve Your Home
			Review Your Options for Paying for Long-Term Care
		Chapter 64 Use Your Home as a Source of Income
			Have the Lender Pay You with a Reverse Mortgage
			Keep Property Rights with a Grantor-Retained Annuity Trust (GRAT)
		Chapter 65 Make the Best Use of YourRetirement Plan
			Defined Benefit and Defined Contribution: What’s the Difference?
			Stake Your Pension Claim
			Tabulate Your Defined Contribution Accounts
			Maximize Your Benefits for Defined Benefit Plans
			Maximize Your Benefits for Defined Contribution Plans
		Chapter 66 Understand Retirement Resources
			Collect Social Security
			Wade through Medicare and Medicaid
			Know Your Employer Pension Plans
			Use Personal Retirement Accounts
			Collect Income from Continued Employment or Self-Employment
		Chapter 67 Make Sure You’re Accumulating Enough
			Determine How Much Is Enough
			Figure Out Whether You’re On Track
		Chapter 68 Allocate Assets at the Current Stage of Your Life
			Decide When to Switch to a More Conservative Asset Allocation
			Transition to a More Conservative Asset Allocation
		Chapter 69 Minimize Your Portfolio Risk
			Assess Your Need for Income
			Assess Your Need for Liquidity
			Make Sure the Funds Are There
		Chapter 70 Manage Your Qualified Retirement Plan Investments
			Figure Out What You Have
			Calculate What You Need
			Consolidate Old Plan Assets
		Chapter 71 Invest to Supplement Income Needs
			Invest with an Eye on the Tax Man
			Use Equity Funds for Taxable Investments
	Part VI Living on Your Investment Earnings and Drawing Down Your Assets
		Chapter 72 Benefits Timing: Make Social Security Work for You
			Look at the Tax Angles
			Contemplate Your Time Horizon
			Control Your Emotions
		Chapter 73 Get the Most Out of Your Pension
			Take a Look at Your Pension
			Determine Your Benefits
			Consider Cost of Living Adjustments (COLA)
			Know Your Distribution Options (How Much Money and for How Long?)
			Get Your Money at the Right Time
		Chapter 74 Understand Your Employer Retirement Plan
			Read Up and Talk about It
			Answer These Questions before You Break the Bank
			Know Your Options when Leaving a Job
			Cha-ching! Shaking the Bank
		Chapter 75 Take Stock of Your Individual Retirement Accounts (IRAs)
			Know the Taxes on Withdrawals
			Match Account Contents with Tax Treatment
			Balance Your Account Actions for Minimal Tax Impact
			To Convert or Not to Convert? That Is the Question
		Chapter 76 Use Your Taxable, Partially Taxable, and Non-Taxable Investments Wisely
			Separate Your Money into Tax Buckets
			Spend the Money in Your Buckets
			Let Your Kids Spend the Money: Estate Planning Issues
		Chapter 77 Allocate Assets in the Active Stage of Retirement
			Understand Retirement Uncertainty
			Decide Whether to Use Annuities
			Allocate Your Nest Egg to Stocks, Bonds, and Cash
		Chapter 78 Allocate Your Assets for the Slow-Down Stage of Retirement
			Revisit the Four Elements of Retirement Uncertainty
			Rethink Income Annuities
			Examine Your Stock, Bond, and Cash Asset Allocations
		Chapter 79 Allocate Your Assets During the Late Stage of Life
			Assess Your Assistance Needs
			Tailor Your Asset Allocation Strategy to Your Savings
			Get Help with Long-Term Care Planning
		Chapter 80 Preserve Assets to Pass on to Your Heirs
			Put Your Assets in the Right Place
			Draw Down Your Assets Wisely
			Plan Your Estate
		Chapter 81 Know Which Types of Investments You Need for Retirement Income
			Keep Safe Investments for What You Need Now
			Maintain Your Balance
			Go for Growth for Longer-Term Needs
			Always Think “Tax Return”
	Part VII The Part of Tens
		Chapter 82 Ten Tips for Building a Solid Financial Foundation
		Chapter 83 Ten Tips to Minimize Risk
Document Text Contents
Page 1

by Sheryl Garrett and
Garrett Planning Network

Investing in
an Uncertain



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Page 193

181 #42: Diversify Your Stock Portfolio by Size
Under most circumstances, you should own a little bit of each category to

counter the uncertainty that surrounds money and markets. The right mix

of large caps, mid caps, and small caps depends on your risk tolerance,

goals, and circumstances. Traditional asset allocation models call for higher

portions of large caps and smaller portions of mid and small caps. More-

aggressive investors who seek higher returns and can withstand the volatility

may want to allocate larger shares to mid caps and small caps.

If you’re seeking diversification and simplicity at the same time, consider a

total stock market fund or an extended market index fund. A total stock market
fund invests in large, mid, and small caps in proportion to their overall repre-
sentation in the market — that is, large caps make up about 75 percent of the

fund. An extended market fund replicates the mid and small cap markets in a
single fund but leaves out the large cap companies. Both options reduce the

number of holdings needed to diversify your portfolio and simplify the invest-

ing process. The trade-off is that you have less flexibility in overweighting or

underweighting a given category.

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182 #43
Diversify Your Stock Portfolio

by Valuation
By David Anderson, CFA

In uncertain times, which is better — growth investing or value investing? Everyone agrees that the purchase price of an investment ought to repre-
sent good value; that is, the anticipated return should justify the associated

risk. However, good value doesn’t have a universal definition; it becomes
obvious only after the fact.

Undaunted, the ever intrepid consultants divide the universe of investment

managers into three style categories: value, growth, and a combination of

the two labeled blend or core. This strategy explains how value and growth
investing compares and advises you on how to protect yourself from manic

changes in the market.

Value versus Growth: Taking
Lessons from History

So what’s the difference between value and growth investors?

� Value investors generally look backward at history. They examine
financial statements to estimate an intrinsic value of a stock and com-

pare it to the current price. If the current price is significantly lower

than the estimated intrinsic value, the value investor purchases the

stock, anticipating that other investors will recognize the disparity

and their purchases will drive up the market price so that it equals or
exceeds the estimated intrinsic value. The fly in the ointment is getting

everyone to agree on the definition of intrinsic value.

� Growth investors look forward. They postulate that companies growing
at above-average rates will provide above-average returns. Generally,

the higher the anticipated growth rate, the more investors are willing to

pay. The fly in their ointment is the realization of that growth. For the

stock price to appreciate, the company has to achieve the growth


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Page 385

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