2012 The Financial Action Plan

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First and foremost – it’s important to start by patting yourself on the back if you managed to weather 2011 with its crazy market swings, record breaking natural disasters, political grid lock in Washington, DC and a near collapse of the Euro Zone. Oh, let’s not forget China and the Asian continent’s continued strive to grow their middle class and most importantly, the Arab Spring throughout the middle east. Yes 2011 was a whopper of a year and I am quite sure 2012 will not be any less stressful or eventful.

So how does one begin 2012?

Financial action plan, of course.

A sound financial plan is based on many factors all of which are important and need to be reviewed consistently and coordinated on an on-going base. Therefore, I strongly recommend that you make time to sit with your financial advisor or wealth consultant and review your finances on an all-in approach. Leave nothing off the table. Discuss every topic however mundane it may seem. Ultimately a sound plan that is visited and actively managed may lead to a less stressful year ahead.

Stock and bonds? When discussing your portfolio here are a few ideas I would pass on.

In a market likely to produce only modest gains, diversifying your fixed-income holdings and focusing on relatively stable equities, is a strategy I recommend you actively discuss in 2012.

Hold the Big Dependable – According to common economic knowledge, early on in a recovery cycle, small company stocks historically give you the biggest pop. However, at this stage of our recovery, it’s the big-boys with balance sheet “might” that are likely to outperform in 2012. These large companies have a far larger exposure to foreign markets and a greater potential for profitability. However, their bigger dividend can account for a larger portion of your gains in a low return universe this coming year.

Bet on high yield On the flip side of the investment spectrum we have bonds. As the recession fears rose in 2011, economically sensitive high-yield bonds sold off big time. This caused a reduction in the price of existing high yield bonds thereby pushing their yields up to records highs. At the same time the flight to safety meant that short-term treasuries jumped up in price by almost 9% according to Barclays US aggregate Bond index in early 2011 driving their yields down to barely a positive number. Since the high yield bond products tend to bounce around, keeping a modest allocation perhaps in the 5 to 10 percent range.

As mentioned before, treasuries won’t default or bounce around as much as high-yields, but are at risk if rates rise. Treasuries maturing in five to eight years are paying barely more than cash, so it makes little sense to buy them at this point. A “bar bell” approach makes a lot more sense such as approximately 80% of the treasuries to be short-term securities and 20% in long-term bonds. In fact the Fed’s campaign to buy long term bonds known as Operation Twist, should make long term bonds less risky. Since this strategy with today’s numbers should yield about 2.5% yield, it’s almost one percentage point greater than the seven year treasury. Again discuss this with your advisor to make sure this allocation is sufficient to give your portfolio some exposure to the asset class.

Over all the markets may very well continue to swing wildly back and forth right up to the election all the while keeping a closer eye on Europe’s financial woes. You will need to remain vigilant and proactive with your plan but most importantly, focused on the long term goal versus day to day numbers.

Good luck out there.

Ronit Rogoszinski, CFP®, is a graduate of Citibank’s elite management program who became one of the youngest mangers in the bank’s New York region in 1990. Shortly after, she became a licensed Financial Advisor for Citicorp Investment Services, an achievement which launched her current successful career. Ronit heads up our New York office where helping both individuals and business owners gain control of their finances has been her primary goal. Ronit Rogoszinski has always been on a personal and professional quest to demystify personal finance, money management and investing for individuals and business owners. She has presented at many seminars in addition to holding one on one consultation to help clients better understand their finances and get closer to achieving their financial goals through specific recommendations and advice.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The prices of small cap stocks are generally more volatile than large cap stocks. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. High yield/junk bonds(grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Securities and Financial Planning offered through LPL Financial, a registered investment Advisor. Member FINRA/SIPC

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