6 Regrets to Avoid
By Brian D. Kilb
It is tradition to look ahead to the new year and resolve to improve on the past. “Auld Lang Syne” is a song for the new year about keeping the past. So perhaps before we make our 2012 to-do list, we should look back to 2011 and either congratulate ourselves or learn from our mistakes.
If you didn’t do the following in the past year, give yourself a pat on the back. Otherwise, put these on your list of things not to do.
Repeat after me: I (State your name.) resolve in the coming year that I shall not……buy gold at the peak.
I had as many questions about buying gold this year as Santa has toys to deliver on Christmas Eve. Gold began the year a tad above $1,400 an ounce and now sits around $1,600. So, not a bad year. When people get scared, gold has long been a safe haven. Given the relentless fear and volatility we experienced throughout 2011, many buyers have been attracted to gold. Queries to buy gold peaked (along with the price – at over $1,900 an ounce) during the very turbulent months of August and September. If you bought and held gold throughout the year, job well done. However, if you bought gold when things got rough, you may be down 15%. So remind yourself next year that most often times of turbulence are the times to remain calm.…overload on foreign securities.
This is when I remind you that foreign securities still have more risk than domestic securities. Yes, I believe the global economy will continue to provide tremendous growth and opportunity, but it does come with a price, and that price is risk. For example, domestic stocks in the S&P 500 dipped about 1% for the year through Dec. 19, foreign stocks as measured by the MSCI-EAFE had lost 14%. Foreign economies are less developed and therefore less predictable, so never forget that more often than not, foreign securities carry greater risk.…believe Meredith Whitney (or any other TV “expert”).
In December 2010, Meredith Whitney, the oft-quoted CNBC contributor, suggested on “60 Minutes” that municipalities across the U.S. would suffer hundreds of billions of dollars in defaults. Her claims led to extraordinary volatility in the municipal bond market in early 2011. Every day, around the clock, hundreds of talking heads give voice to theories of global and financial destruction that make our heads spin, and in some cases like this actually move markets. Don’t believe everything you hear. My favorite muni bond fund is up 9% this year. Take that, Meredith.…take IRA distributions to pay down my mortgage.
I’m not a big fan of debt, so deleveraging or paying down debt is almost always a good idea. It gets a bit tricky when it comes to your mortgage, especially in our current environment of low interest rates. When people are afraid, a common, often appropriate reaction is to pay down debt and skinny down their monthly obligations. Consider the costs of that approach, though. Remind yourself that every dollar distributed from your IRA is taxed as ordinary income. Taking a distribution from your IRA to pay down your mortgage is, in effect, a strategy to accelerate taxes at potentially inflated rates to pay off borrowings at especially low rates. If you are in a 20% tax bracket, does it make sense to pay 20% to Uncle Sam to pay off loans at 4%? Probably not.…buy anything I don’t understand.
I’m struck by how many financial problems are caused by people who buy or invest in things they don’t understand. Don’t ever buy anything that you don’t understand or that doesn’t make sense to you. Take the time to learn more until you are either comfortable or decide that it’s just too complicated to digest. If that is the case, decline that investment opportunity and move on to something you can relate to. Trust your intuition. Most often, you will be right.…plan on being right all the time.
This is a humbling business. The number of variables in the economy and marketplace are infinite. The complexity and sheer volume of available resources is overwhelming. I’ve been around long enough to tell you that the one thing I can count on is the element of surprise in the coming year. We build portfolios based on what may – or may not – occur. I am fond of telling people what my mother always told me: “Plan for the worst and hope for the best.” Have the conviction to make good allocation decisions, but don’t take excessive risk based on any forecast. You will inevitably be proven wrong.
Happy New Year, and may the coming year bring you many blessings.
Brian Kilb is executive vice president and chief operating officer of Landaas & Company.
initially posted Dec.22, 2011