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(Part of a series of articles on charitable giving and the Union County Foundation by David Vollrath - Executive Director) In today’s economic environment investors find themselves working extra hard to maximize their investment returns. Interest rates are at near record lows and it seems everybody is looking for ways to squeeze out a bit more return. The stock market’s volatility is becoming legendary and trying to accurately predict those market ups and downs is about as difficult as filling out a perfect NCAA basketball bracket. Despite its difficulty many investors attempt to increase their returns by creating a system of market timing to buy and sell their stocks or mutual funds. Recent research suggests these "timing" methods generally don’t work. Some timing systems advise buying or selling when the stock price to earnings ratio reaches a certain level or when dividends reach a certain % level. Research by Santa Clara University Professor Meir Stateman studied markets over different periods of time and in different countries. What he concluded was that even if a method worked over a certain period of time (3,5, or 7 yrs.) it either failed over a longer period of time or did not work in a different country. Why doesn’t market timing work? Professor Stateman sites several reasons. First, markets are extremely complicated and impacted by a huge number of economic variables. Also the unpredictable psychology of the individual investors has a major impact on markets. These are among the reasons that is virtually impossible to create a 100% successful method for timing the buying and selling of your stocks. So what is the best answer? The tried and true method of many trust portfolio managers is arguably the best choice for most individuals. Many trust managers follow a model of investing about 60% of the assets in stocks or mutual funds and about 40% in bonds or cash equivalents. Historically this balance has proven to yield a reasonable rate of return with an acceptable level of risk. Individuals who are considering funding a charitable unitrust or who are serving as a trustee of a trust should keep these investment guidelines in mind. With the assistance of your qualified investment advisor, over time a balanced portfolio of high quality stocks and bonds is likely the best investment road to follow. The Union County Foundation is equipped to help you achieve your charitable goals by providing as a free service pertinent information, charitable life income plans, and assistance with planned giving and estate planning. Please call us at 937-642-9618, email us at commfounduc@imetweb.net, or stop by our Marysville office at 126 N. Main St. We are committed to helping you…. "preserve your footprint in time." |
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