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SUMMER 2000 Newsletter

Wink Tax Services



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Investing is a gradual process. You start out with one investment, adding some and selling some as the years go by. If youíre not careful, this can result in a conglomeration of investments that donít fit your overall investment strategy. Thus, you should periodically review your portfolio to avoid these mistakes:

YOU DONíT HAVE A WELL-DEFINED ASSET ALLOCATION STRATEGY. Many investors select individual investments over the years, without really considering the overall makeup of their portfolio. Add up all your investments and calculate what portion is invested in each investment category. The most basic categories are stocks, bonds, and cash, but each category also has many subcategories. Since subcategories can have different risk levels (i.e., blue chip and small technology stocks have much different risk levels), review subcategories as well. Assess your current allocation and decide whether it makes sense for your personal situation.

YOU HAVE TOO MANY INVESTMENTS THAT ARENíT ADDING DIVERSIFICATION TO YOUR PORTFOLIO. Diversification can help reduce the volatility in your portfolio, since various investments may respond differently to economic events and market factors. Yet itís common for investors to keep adding investments that are similar in nature. This does not add much in the way of diversification, while making the portfolio more difficult to monitor. Before adding an investment to your portfolio, make sure it is a good addition that will further diversify your investments.

YOUR PORTFOLIO IS PERFORMING POORLY. While everyone likes to think that their portfolio is beating the market averages, many investors simply donít know for sure. Review the return of each component of your portfolio, comparing it to a relevant benchmark. While you may not want to sell based on one or two years of underperformance, you should at least monitor closely any investments that significantly underperform their benchmarks. Next, calculate the overall rate of return for your portfolio and compare it to a relevant benchmark. Donít just look at the stock portion of your portfolio Ė include all your investments. Also, be sure to compare your actual return to the return you targeted when setting up your investment program. If you arenít achieving your targeted return, you risk not achieving your financial goals. Now honestly assess how well your portfolio is performing. Are major changes needed to get it back in shape?

YOU TRADE TOO FREQUENTLY WITHOUT ADEQUATE RESEARCH. In this fast-paced investment world, it is tempting to trade often based simply on other peopleís recommendations. Yet, besides the tax and trading costs associated with frequent trading, several studies have shown that frequent traders often underperform those who trade less frequently. For instance, a recent study of the stock-trading habits of men and women found that married men traded 45% more than married women, but earned annual risk-adjusted net returns that were 1.4% less than those women. Single men traded 67% more than single women, earning 2.3% less than those women (Source: Journal of Financial Planning, August 1999).

YOU DONíT CONSIDER INCOME TAXES WHEN INVESTING. Using strategies that defer income taxes for as long as possible can make a substantial difference in the ultimate size of your portfolio. For example, a recent study found that high-net-worth individuals could increase their annual total return by at least 2% by using tax-efficient investment strategies (Source: Trusts and Estates, March 1998). Some tax-efficient strategies to consider include utilizing tax-deferred investment vehicles, minimizing portfolio turnover, not selling assets simply to rebalance your portfolio, and placing assets that generate ordinary income or that you want to trade frequently in your tax-deferred accounts.

To help maximize the potential of your investment portfolio, you should try to avoid these investment mistakes. If youíd like help reviewing your investment portfolio, please call at (800) 878-4036.


With retirement now spanning a significant portion of the average retireeís life, you should adequately plan for retirement well before that time arrives. The following tips can help with your retirement planning:

CALCULATE HOW MUCH YOU NEED TO SAVE BY RETIREMENT AGE. Itís tempting to avoid this calculation if you fear the amount will be overwhelming or if you think retirement is too far away. Yet, without a clearly defined goal, it will be difficult to gauge your progress over the years or to ensure that you have adequate savings when you retire.

DONíT RELY ON RULES OF THUMB WHEN ESTIMATING YOUR RETIREMENT EXPENSES. Every individualís plan for retirement is unique. Some of your pre-retirement expenses are sure to decrease, while others are likely to increase. Donít just assume that youíll need a certain percentage of your income for retirement. Carefully review your expenses, deciding how youíll spend your retirement years and how much it will cost.

PLAN ON FINANCING A RETIREMENT THAT COULD LAST DECADES. With increased life expectancies, itís not unusual for a retirement to last 25 or 30 years. This reality will significantly impact the amount you need to save and how you invest those savings.

DONíT RELY ON SOCIAL SECURITY AND PENSION PLAN BENEFITS TO FUND YOUR RETIREMENT. These two benefits are funding a smaller percentage of retirement income and are likely to continue to decrease in the future. A significant portion of your retirement income will probably come from personal savings and investments.

START AN INVESTMENT PROGRAM IMMEDIATELY. If you canít save the amount needed to reach your goals, at least get started saving something. Make a commitment to increase that amount every year. You need to make investing a habit and start that habit as soon as possible.

CONSCIOUSLY DECIDE HOW TO ALLOCATE YOUR RETIREMENT SAVINGS. How you allocate your savings among different investments will depend on your risk tolerance and how long you have to invest. For most people, that will mean that their portfolios will contain a significant percentage of growth vehicles to help protect against inflationís effects over the long term.

TAKE ADVANTAGE OF ALL RETIREMENT PLANS. Invest in your companyís 401(k), 403(b), or other defined contribution plan as soon as youíre eligible. Also consider individual retirement accounts, both traditional and Roth.

CONSIDER WORKING AFTER RETIREMENT. Although retirement is typically viewed as a time for rest and leisure, many years of this can be overwhelming as well as expensive. Instead, you might want to ease into retirement by starting a business or working part time.

DONíT TOUCH YOUR RETIREMENT SAVINGS FOR OTHER THAN RETIREMENT PURPOSES. Donít be tempted to borrow from your 401(k) plan or to spend part of a lump-sum distribution. Raiding your savings now will only make it more difficult to meet your future retirement needs.

Get started with your retirement plans now to help ensure that you meet your retirement goals. Call us today at (800) 878-4036 if youíd like help designating retirement strategies to help achieve your retirement goals.


One of the most frequently heard financial tips is to start investing early and continue that habit consistently throughout your life. While thatís good advice, it can be difficult to follow during the first few years of an investment program, when there may not be significant growth in your investments. Looking at the potential long-term results of an investment program, even a modest one, can help you see the consequences of remaining committed to your program. Need help setting up an investment program? Please feel free to call us at (800) 878-4036.


The long bull market in stocks has caused many investors to become more comfortable with the risks associated with stocks. Thus, as the above-average returns of stocks continue, it becomes more tempting to forget about diversification, allocating all of an investment portfolio to stocks.

But that strategy assumes that stocks will continue their strong advance well into the future. While past performance is not a guarantee of future performance, it is instructive to take a long-term view of the stock marketís performance. By decade, the real return (total return less inflation) of the Standard & Poorís 500, an unmanaged weighted index generally considered representative of the U.S. stock market, was:

  • 1930's     2.6%

  • 1940's     2.9%
  • 1950's     17.1%
  • 1960's     7.8%
  • 1970's      2.1%
  • 1980's     12.3%
  • 1990's     13.3%

(Source: Financial Planning, January 2000)*

How many investors would have the fortitude to stay in the stock market during a period similar to the 1970s? The purpose of diversification, or asset allocation, is to protect your portfolio from downturns in any one asset class. In a diversified portfolio, the individual components do not always move together in the same direction or by the same magnitude.

During good times, diversification can act as a drag on total return. By definition, allocating anything other than all of your portfolio to the highest performing asset means that your return will be lower. But diversification is meant to protect your portfolio during market downturns and to reduce the volatility in your portfolio.

After this long stock market advance, review your portfolio to see if youíre comfortable with the risks. Is your portfolio over-concentrated in stocks? Could you remain calm during a protracted bear market? Are you willing to risk your portfolioís profits during a significant decline in the market? Many investors have never experienced a significant bear market, so they will have to make educated guesses about how they would react. But if youíre not willing to watch your portfolio decline significantly, now may be the time to adjust your asset allocation, shifting some of your assets to other investment categories. If youíd like help reviewing your current asset allocation, please call us at (800) 878-4036.

* These figures are presented for illustrative purposes only and are not intended to project the performance of a specific investment. Investors cannot directly purchase an index.





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Last modified: January 30, 2017