Hi Everyone,

We are once again seeing many American investors retreating from certain equity investments in favor of bonds. Start swimming upstream.

~Susan

SWIMMING UPSTREAM
Know when you should

The May 11th issue of The Wall Street Journal (page C1) reminded us again that the average investor is usually too busy following the herd to swim upstream. Swimming upstream can have its advantages.

“Go with the flow” may be great advice in some areas of life, but not when it comes to investing.

With behavioural finance experts demonstrating how and why humans largely zig when we should zag, analysts try to draw smart conclusions from watching so-called dumb money slosh around in the market. On that measure, at least, things soon may be looking up for stocks.” ~Spencer Jakab

The article goes on to point out that, although many investors follow the herd or go with the flow to their own detriment, there may be a genuine shift toward fixed income investments due to the aging population.

Just remember, what’s good for the goose (aging baby boomers) may not be good for the gander (those trying to accumulate wealth).

Until next week,
Susan R. Linkous

Quote of the Week: “People want economy and they will pay any price to get it.” ~Lee Iacocca

Always remember that stock investing involves risk including loss of principal and that bonds are subject to market and interest rate risk if sold prior to maturity. No strategy assures success or protects against loss.

Hi Everyone,

Economic indicators come in all forms. My favorite is called my gut or my intuition but since I can’t pass that
on, I’ll share a few useful ones that you should know about.

~Susan

Intriguing Indicators

Around the time I was graduating, the Big Mac Index was born. The idea is simple. What would certain currencies be worth if the price of a Big Mac was the same everywhere?

Quality control makes it work. Big Macs are nearly identical everywhere you go so if they cost 4 dollars here in the U.S. and 3 euros abroad, the rate of exchange could be stated as 1 dollar = 0.75 euro.

The fluctuating price of a hamburger can indicate if one currency is overvalued or undervalued.

Arizona is the Copper State and Copper Prices are another leading indicator of economic health. Higher copper prices are indicative of economic expansion as copper is a very cost-effective conductor of electricity. It is used in wiring homes and offices, automobiles, electric appliances and many of our beloved tech gadgets.

With copper, it’s important to watch the trendline. Certain global events can surprise the market without being a good indicator of economic expansion or retraction. Remember to watch the overall direction rather than a single price change.

Indicators are intriguing and invaluable to what I do.

Until next week,
Susan R. Linkous

The National Association of Board Certified Advisory Practices (NABCAP) will be announcing their selection for Arizona in a few weeks. The Linkous Group, Ltd. made the cut in 2011. We hope to be there again. You can show your support at www.nabcap.org.

Quote of the Week:

“Never look back unless you are planning to go that way.” ~Henry David Thoreau

Securities offered through LPL Financial
Member FINRA and SIPC

The Buckets

Hi Everyone,

For as long as I can remember, investment professionals have used “buckets” to educate clients on and address a variety of financial issues. The American Association of Individual Investors (AAII) just dedicated another issue to “The Bucket Strategy” in their April 2012 publication.

Let’s take a look.

~Susan

Buckets as an Income Strategy
“The bucket strategy will have buckets of funds designated for use in specific retirement time periods.” ~Noelle E. Fox

Most of these strategies utilize three buckets with the first being cash and cash equivalents to sustain you through the next 5 years. Due to no to low interest being paid on these reserves, many investors have lightened up this bucket. My typical client will have two years here now.

Bucket #2 is to be filled with assets appropriate for years 6-10. Or, in times like these, 3-7. Investments typically placed here will be fixed income securities including a variety of bonds and sometimes convertible securities, real estate investment trusts or large cap dividend paying stocks.

Although typically considered more conservative than stocks, these assets are subject to market, interest rate and liquidity risks and may not be suitable for all.

The 3rd bucket is for growth. These are the funds you won’t be needing for many years and are likely to be completely invested in stocks. The stock holdings here are varied between small companies, foreign and those with a good outlook for future growth.

Keep in mind that all stock investing involves risk including potential loss of principal.

Many studies in the area of behavioral finance indicate that investors and retirees often find confidence in a bucket strategy as it breaks the financial picture down into smaller pieces.

Another View

The bucket strategy has been around a long time and it does work for many; however, there are other methods. Systematic withdrawal from an actively managed portfolio is a common substitute to the bucket method. I’ve even been known to combine the two.

What’s important is that you understand the basic choices of drawing income and participate in the decision making process that will impact you. It’s not hard but it can be scary since no single strategy assures success or protects against loss.

Here to help,
Susan R. Linkous

Quote of the Week

“There is absolutely no inevitability as long as there is a willingness to contemplate what is happening.” ~Marshall McLuhan

Hi Everyone,

Monday morning brought early volatility to U.S. equity markets and headlines regarding increased fear and volatility. Many of these references were to the VIX. I want you to understand this measure and know what may fix your VIX concerns.

~Susan

The VIX

VIX is a ticker symbol for the Chicago Board Options Exchange Volatility Index and is a measure of the perceived volatility of S&P 500 Index options over the next 30 days.

It matters only in that it is one of the more popular ways of gauging the fear level of investors.

Things to keep in mind:

1) Volatility or changes in price often provide entry points for new investments and opportunities to take profit or realign your holdings.

2) The VIX is focused on options/prices of 500 large cap stocks that are actively traded known as the S&P 500 Index. My clients typically own many other investments whose pricing over the next 30 days are not reflected in any manner by the VIX.

Fixes

One of the most important things you can do as an investor is to be aware of how much volatility you can tolerate without deviating from your investment plan. In other words, create your own “VIX”. You may prefer to stay within 6% price movements or 3% or 10%. Your measure is far more important than any other.

Communicate it.

If I’m your advisor, chances are, we talk about it often. If I’m not your advisor, please have this conversation with the appropriate person.

Until next week,
Susan R. Linkous

When you see an “index”, understand that you can’t invest directly into it. Indices often track price fluctuations but aren’t direct investment vehicles.

Any reference to “options” above is for definitive purposes only. Options trading is not suitable for many.

Hi Everyone,

Another tax season is behind us and I won’t be shy when it comes to reminding you that we should not wait until April of next year to deal with important issues. Our tax code is complicated. We could do more in the summer.

~Susan

FIFO and a Frustrating Code
Our Economy Today

Investors in traditional mutual funds now have a choice on how their cost basis is calculated. Most will choose between FIFO (first in, first out) and an average cost basis. Clients in my fee-based asset management program with LPL Financial are likely using the FIFO method.

If you own traditional mutual funds in a taxable account, we should spend some time discussing this issue. The next few months are a great time to do it. Please don’t wait until tax season or the end of the year.

Headline news this weekend was full of commentary on the proposed Buffet method of paying taxes and the frustrating complexity of our present code. It’s amazing how such a complicated system is used in a fairly basic manner. Greg Ip summed it up well:

“The federal government is a gigantic player in the economy and it will get bigger in coming years as government services expand, the population ages, and interest on the national debt mounts.

Federal spending comes in three varieties:

1. Interest on the debt.
2. Discretionary spending.
3. Mandatory spending.

Tax revenue comes mainly from personal and corporate income and payroll taxes. Compared to other countries, the United States relies relatively little on consumption taxes such as gasoline or a value-added tax.

Every year the president proposes a budget; Congress accepts some of it but ignores a lot as it passes the appropriations, tax, and mandatory program laws.

Unlike the federal government, states must balance their budgets each year, which makes for profligacy in good times and wrenching austerity in bad times.”

Until next week,
Susan R. Linkous

Investing in mutual funds involves risk, including possible loss of principal. None of the above is intended to be specific tax advice. Please consult your tax professional to determine which cost basis calculation may be most appropriate for you.

Securities offered through LPL Financial
Member FINRA and SIPC

Hi Everyone,

Back in May of last year, I originally posted most of the following content to remind everyone that periods of uncertainty are common in the market and there are a few things investors should keep in mind to weather the Spring storms. They are centered around cleaning things up.

~Susan

Spring Cleaning

Spring is a good time to clean up and rebalance portfolios for the summer. With present downturn in hand, it’s important to keep the following in mind:

Financials of U.S. companies continue to improve.

Concerns about European debt issues are real and being met with sound solutions.

U.S. banks and insurance companies continue reform.

Innovative small and mid-sized firms continue to impress with product design and creativity.

Current tax rates are fairly low.

The American way-of-life still appeals to most everyone outside of the U.S.

High flying sectors may be replaced with moderate gains from many.

Just remember that when you rebalance during a downturn you may be selling some high to buy a few low. It’s not a bad thing.

Until next week,
Susan R. Linkous

Hi Everyone,

Happy Easter! As I grabbed the eggs and other staples at the local grocery this weekend, I ran into an old friend that ran up to me and asked “So, what do you invest in when the market is at a multi-year high?”. The question itself isn’t that uncommon but it made me look around the store and I had to chuckle at what I saw.

When in doubt about where to invest, you can always consider investing in what’s in your cart. Many of these products are classified as consumer staples and may be appropriate for investors seeking an opportunity for steady growth and a bit more stability than other asset classes.

~Susan

Eggs and Staples

The Consumer Staples sector includes agricultural products, personal products, soft drinks (the largest portion of sector), food retail, food distributors, brewers, packaged foods and meats, super centers, household products, drug retail, tobacco and distillers.

Many firms operating in sector are experiencing increased sales in developing markets which is a trend likely to continue. Due to the diversity of the sector itself, most every investor can find something in it.

Standard & Poor’s, as of 4/1/2012, has the sector ranked as “over weight” indicating there may be value there now with a chance the sector will outperform the broader market in months to come.

Investing in one particular sector can involve more risk than investing more broadly across many sectors so you should determine, with assistance of your advisor, what may be an appropriate position for you.

As I strolled around looking into all the carts, I only saw one or two that didn’t have brand names soft drinks or packaged snack foods. This may not surprise you but could serve as a reminder that good investment ideas may be right in front of us.

Final note: If you see an “Index”, understand that you can’t invest directly into it. Indices often track price fluctuations but aren’t direct investment vehicles. Thanks!

Until next week,
Susan R. Linkous

Hi Everyone,

Alternative investments continue to be discussed in great detail but it’s important to have at least a basic understanding of what they are before you form an opinion or make a decision. I hope this helps.

~Susan

Alternative Investments

Todd White and Paul Mumma of Columbia Management recently published the following in the 2012 Perspectives publication put out by their firm. It’s a simple look at an often misunderstood investment class.

“The word “alternative” implies something that is chosen instead of the “other” option. In this case, the “other” is whatever most investors typically do. Alternatives are investments that are in some way different from traditional investments (stocks, bonds and cash). Importantly, the investments that are considered alternative can change over time, as certain strategies become generally accepted as “non-alternative” and become part of most core portfolios. A good example of this is emerging markets equities, which were once thought of as esoteric but have now become commonplace.

Broadly speaking, most alternative investments fall into two categories:

1. Strategies that seek to invest in traditional ways (buy and hold) but in asset classes that are alternative to stocks, bonds and cash.

2. Strategies that may invest in either traditional or alternative assets but do so in an alternative manner.”

Due to deviating from the “norm”, alternative investments involve substantial risks and are more volatile than traditional investments, making them more suitable for investors with an above-average tolerance for risk. Alternative investments should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of them may accelerate the velocity of potential losses.

Until next week,

Susan R. Linkous

Hi Everyone,

We are back! Paradise for me is the Pacific Ocean. I’m happy on it, in it or near it and of course I took my reading material along. I hope the following provides a perspective that we sometimes lose and one that traveling abroad can often bring back.

~Susan
American Debt

Treasuries and Money

While in paradise, I stumbled upon the following in the March 10-16 issue of The Economist.

“In a financial landscape full of oddities, the prospect of America being paid interest by its creditors when its national debt is rocketing is one of the oddest. The Treasury recently disclosed it is exploring how to let investors enter negative yields when bidding at debt auctions. Clearly, demand for American government debt is driven by much more than a hunger for returns. Financial market participants use Treasury bonds and bills as collateral to secure lending, for instance. And for risk-adverse investors such as foreign central banks and retirees, America’s debt is uniquely suited to storing savings without much due diligence. In short, its government debt is a lot like money.

This analogy is not perfect, of course. Treasury bonds are less useful for buying things and government debt carries at least the possibility of default. But in terms of liquidity, risk and returns, few things come closer to money.”

My average client does things differently, of course, than a foreign central bank and I have yet to have anyone ask for a negative return.

Happy to be back (I think),

Susan Linkous

Note: The best way to submit tax related questions is to send them via email to susan@linkousgroup.com. Thank you.

Government Bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Securities offered through LPL Financial
Member FINRA and SIPC

The Linkous Group, Ltd.
A Registered Investment Advisor
“Susan On Money”

Hi Everyone,

We are on vacation.

Please make note of the following resources available to you during our vacation. We will return to normal schedule March 21st.

~Susan

Resources Available to You

Corporate Office in Fountain Hills
(480) 836-2326 or (866) 361-8863
Available to schedule appointments upon our return, take messages, and receive documents.

LPL Financial
(800) 558-7567
Assistance for existing clients wishing to place trades or handle any issue involving the movement of money or securities. Please have your account number available.

Website and Email
www.linkousgroup.com
susan@linkousgroup.com
Website will provide you with basic information about my firm and services offered. You may also access past weekly updates by clicking on the blog link. Emails may be sent at anytime but must not include buy or sell orders as they may not be responded to before the 21st. All such orders should be directed to LPL Financial at number above.

Tax Matters
Please send a detailed email to susan@linkousgroup.com with any tax related issues. These will be answered promptly upon my return and will receive top priority. It may be expeditious for you to provide direct contact information to your CPA with all such inquiries.

Thanks for your patience during this time and I hope everyone has a wonderful couple of weeks.

~Susan R. Linkous

Securities Offered Through LPL Financial
Member FINRA and SIPC