2008 Presidential Election and Your Money

Posted August 27, 2008 by admin. tags:Tags: , , , ,
Picture of the White House


photo by Seansie

Written by Dave Young, President of Paragon

How will the presidential election effect you?

2008 has been a rough year for investors.

Whether you have been invested in real estate or the stock market, both have gone down more than up. The credit crisis and high energy prices have been blamed for most of the damage.

Talking to investors, I get the sense that many are worried about the election.

The data that we track from Intrade, a futures based election trading system, show Obama with a clear 64% to 37% lead over McCain. Unless Obama makes some unbelievably bad mistakes over the next couple of months it is likely he will be our next president. Historically, this tracking service has been much more accurate than traditional polling.

Investors are justifiably concerned because many of Obama’s policies are potentially damaging to our economy.

Under the premise that the government knows how to better spend your money than you do, Obama wants to raise taxes significantly. And any economist will tell you that raising taxes is not the way to help a weak economy.

Obama’s platform proposes major tax increases.

He is focused on raising more taxes from those taxpayers who already pay 90% of the U.S. tax bill. The bottom line with his program is that if you already pay a lot of taxes then you will pay significantly more. If you don’t pay very much in taxes then you shouldn’t see much change, you may even pay less. According to a recent Wall Street Journal editorial, Obama would raise the top tax rates from their current 40% to over 60%, including the state and federal taxes.

This is a calculated political bet that there is a majority of Americans that want the more affluent minority to pay all of America’s bills. Throw in some anti war rhetoric and a promise of undefined “change” and you have a recipe for a successful presidential campaign.

There is really no benefit to arguing the merits of Obama’s platform. We can’t control the outcome of the election. But we can control the investment strategies we follow in these uncertain times.

Historically, when democrats take the white house, the market usually does better than under republicans. That was no typo. It’s a little confusing though.

Usually going into an election, if a democrat is winning, Wall Street expects the worst, and the market sells off in advance. After the democrat gets in office, then Wall Street realizes they aren’t going to do what they promised, breathes a sigh of relief and then the market rallies.

On the other hand, if a republican is winning, the market has positive expectations and rallies in anticipation. But then after the republican gets in, and doesn’t keep their promises, then the market sells off in disappointment.

So far this year the market has followed a pattern similar to previous election years when the incumbent party has lost.

If McCain is able to miraculously turn things around then we will likely see a significant rally into the end of the year. If Obama keeps his lead then the market will likely be flat to only slightly up between now and the end of the year, but then next year the market should perform better.

While market forecasts make interesting conversation, I don’t put a lot of stock in them, including my own. At Paragon Wealth Management, our investment decisions are all based on quantitative models. We process market data on a daily basis and make our decisions accordingly. Human emotion is removed from the decision process.

Paragon’s investment models measure what is actually happening in the market, day by day.

They are designed to react to what the markets are actually doing rather than what we think will happen in the future. For example, whether a democrat or republican wins will affect how health care stocks, energy stocks, tech stocks, financial stocks, defense stocks, etc. all react.

The bottom line is that this election WILL affect the market.

Certain markets and sectors will perform much better than others, depending on the election outcome. It is important to have an investment strategy in place that will adapt to whatever changes take place. In the stock market, change is the only constant that you can plan on.

Visit our website for more information at www.paragonwealth.com.

How I Deal With My Financial Fears

Posted August 20, 2008 by admin. tags:Tags: , ,
Without Fear


photo by Sam UL

Taken with permission from The Simple Dollar
Written by Trent

Even though I write a lot about personal finance on here and elsewhere, I still have a lot of my own hang-ups about personal finance. One of the big reasons I started The Simple Dollar was to learn how to deal with those fears, and once I dealt with that new batch, a fresh batch came along. Right now, my biggest fears revolve around taxes, the possibility of a third child, identity theft, and future career directions.

I think this is actually a pretty normal thing for most people. We all have areas where we’re less than confident and we all have areas that concern us about the future.

It’s very easy to push these fears aside and just not worry about them, especially if they’re not vital to our day to day life. We’ll tell ourselves, “I’ll think about that later,” and then when it comes up again, tell ourselves the same thing again, until it’s sat around for years, untouched.

This can really be dangerous. Take, for example, my fear of taxes. I’m making myself face this fear this year and that means I’m digging into an uncomfortable subject, saving for the taxes, and paying them when they’re due. If I had taken the “typical” route and worried about it later, I would be suffering dearly when tax time came around.

What can a person do to step up to the plate and tackle our financial fears? The obvious “just do it!” tactic is nice, but it doesn’t really work here – if it were that simple, we’d already have faced the fear and moved on with life, wouldn’t we? Here are six alternate tactics to try.

Make a list of what exactly makes you nervous

Quite often, a fear of a financial move is actually just related to some small aspect of the move. Spend a bit of time figuring out exactly what it is that makes you afraid. I find that doing this with a pen in hand and a piece of paper in front of me makes it easy for me to jot down thoughts, which I can start working through.

Sometimes what you’ll find out is that you’re actually stressed out about something else entirely or you’re only stressed out by a very small part of the equation. For example, I know one person who was avoiding dealing with his retirement situation because he intensely disliked the retirement specialist at his workplace. It wasn’t a fear of retirement, it was a fear of interaction with someone.

Do some research

One big fear is fear of the unknown. Quite often, a lack of knowledge will make someone afraid of something else – we can all think of examples of this in life, where ignorance makes people afraid.

Don’t succumb to it. If you’re afraid of something because you don’t know about it, investigate it. Hit the library or visit Wikipedia and find out more. Dig in, a piece at a time, until you understand the topic – and the fear of it is lifted.

Talk to someone about it

If something makes you uncomfortable, put forth the effort to talk to others about it. Find someone you trust deeply, preferably someone with some experience in the area in question, and just ask questions.

This might mean contacting a financial advisor.

If it does, seek out a fee-only financial advisor, as they won’t be engaged in selling you products and are most interested in just providing information to you. If a fee-only advisor isn’t available to you, you can use another, but be very hesitant to invest or put money in specific places based on their advice – instead, just take their information with you and follow up yourself with your own research.

Write out the pros and cons of your decision

One alternative to having a conversation, especially if the fear is related to an important decision, is to simply write out all of the pros and cons related to that decision.

For example, I kept putting off my decision to switch to a full time writing career. One of the big steps that helped push me towards writing was simply making a giant list of the pros and a list of the cons of making the leap. This really helped put things in perspective, as it became clear I was letting the “cons” guide my way of thinking, even though the “pros” were a much more powerful list.

Spend some time each day thinking about the fear

Don’t let yourself lay the fear on the table, because once you start ignoring it, it’s easy to just let something very important slide by until it’s too late. Instead, add consideration of the fear to your daily to-do list and actually spend a bit of time thinking about the fear seriously.

This is often good to do if you’ve gathered the information but are still hesitant about what to do. Steady and informed consideration of a fear is a great way to make that fear go away. I like to think of my two year old son who fears sharks in his room. After giving him a flashlight to investigate the room and some talk about how sharks need water to swim in and there’s no water in his room, he thinks about this information, overcomes the fear a little, and goes to sleep. Over time, his fear of sharks has become less and less intense.

Take a baby step

Once you’ve made up your mind that you’re going to do this, get started with a first little baby step. Take a little action that moves you in the right direction, and feel the relief that comes with wiping away your fear.

Then, take another little step, and another. Soon, you’ll be well on your way to completely eliminating the challenge that brought you so much fear to begin with. And it will feel really good.

What are your financial fears? Feel free to share them in the comments.

Is Your Investment Advisor Olympic Material?

Posted August 14, 2008 by admin. tags:Tags: , , ,
Beijing Olympics 2008

 

 


photo by http2007

When I think of olympians, I think of the best of the best.

The best track stars, the best gymnasts, the best swimmers (Michael Phelps), etc. To become the best it takes a lot of training, dedication and motivation.

Most people don’t see what these athletes experience behind the scenes to become olympians. They only see the result of what they’ve become.

This is true with investing.

To become an “olympic” investment advisor, it takes a lot of training, dedication,  motivation, and years of experience. A person can invest in the stock market on their own, but usually they won’t get the “olympic” results they are looking for unless they put in an “olympic” type of effort.

That’s why most investors who want “olympic” results hire a professional or an “olympic” advisor to manage their funds. It’s important to find someone who is capable of managing your funds to receive the best performance results. There are many advisors that you can trust and become friends with, but they may not be the best people to manage your life savings.

It is uncommon for an Registered Investment Advisor to post their performance results, especially online. There are many reasons for this, but poor performance is the primary one.

Simply posting our performance numbers is one area that sets us apart from other advisors.

Posting our performance numbers “net of all fees” is another way in which we are unique. We post our portfolio performance numbers, net of all fees” on our website each month. That way an investor can see our actual net results generated on an ongoing basis.

We updated our performance numbers through July 30, 2008, on our website today.

Next time you think about investing, and hiring an investment advisor, look at their performance record, net of all fees, to see if it is “olympic” material.

Investing in the Stock Market is Like Freeway Driving

Posted August 7, 2008 by admin. tags:Tags: , , ,
The Open Road

 


photo by Shek Graham

Written by Shannon Golladay

The other day, my husband, Patrick, and I were driving home on the freeway, talking about how the day went. We talked about the stock market and how it was doing.

As we talked we looked out the window at the freeway.

Patrick said,  “Investing in the stock market is like driving on the freeway.”

I had never heard this analogy, and asked, “What do you mean?”

He said, “Most people try to drive in the fast lane on the freeway, but when someone blocks them, they go to another lane even though in the long run the fast lane will get them there the fastest.

The stock market is the similar. Most people are happy when the stock market is going well and don’t want to leave, but when the market goes down they leave. In the long run, they would be better off if they stayed in the whole time instead of leaving when it got bad.”

I thought that was a good way of looking at it. It seems like it would be the right thing to pull out when things are bad in the stock market, but in reality it only hurts you in the long run.

I’ve talked to Dave Young, President of Paragon, about this a few times. He agrees and usually shows me Paragon’s numbers to illustrate this point.

Let’s look at Paragon’s Growth Portfolio ,Top Flight, as an example.

Top Flight Performance Numbers vs. the S&P 500

2008 (thru 2nd quarter)    -4.70%                  -11.91%
2007                             16.98%                      5.50%
2006                               5.91%                    15.79%
2005                               6.30%                      4.89%
2004                              10.15%                    10.87%
2003                              50.31%                    28.69%
2002                             -13.60%                   -22.12%
2001                                9.10%                   -11.92%
2000                              62.42%                     -8.82%
1999                              17.69%                     20.66%

1998                              31.67%                     28.58%

As you know, past performance is no guarantee of future results, but as you can see in most cases, performance went up after it went down. So the people who stayed in during the difficult times gained a much larger return on their investments for staying.

Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions. Benchmarks are used for comparative purposes only. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. An investor’s actual returns may vary due to timing of withdrawals, contributions and other factors. Before investing, contact Paragon to discuss your investment objectives, risk tolerance and fees. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation. It is not possible to directly invest in this index.

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