Tips From Donna ( December Wesban Monthly)
by Donna Gordon on February 1st, 2016

A Simple Plan 


Outlining an investment plan can be challenging: Today, individuals are responsible for building their own retirement accounts. This is a dramatic change from the past generation, who relied heavily on defined-benefit pension plans, which guaranteed income for life following retirement. Investors are faced with the challenge of making decisions on how much to save each month, how to allocate savings, and how to take disbursements in retirement. Fortunately, target-date funds offer a convenient solution to help simplify investing for the future.
Target-date funds, also known as lifecycle funds, have emerged as a popular investment option for individuals who may be unprepared or reluctant to make their own investing decisions. These funds provide a pre-built asset allocation strategy that automatically adjusts based on the participant’s age.
Target-date funds can make retirement planning easier: The image above illustrates three target-date fund categories with varying maturities. As time passes, each portfolio is adjusted to meet the needs and goals of investors. Target-date funds achieve this by continually adjusting the mix of stocks, bonds, cash, and other investments. These funds become more income oriented as they approach and pass a target date.
For example, an investor who plans to retire in 15 years might select a fund from the Target Date 2026–2030 category, which places a large amount of assets in domestic and international stocks. Similarly, an investor with a retirement horizon of three years may choose to invest in a fund from the Target Date 2016–2020 category, which offers a more conservative mix. Consult your financial advisor to learn about target-date funds that may be right for you based on your investment objectives and risk tolerance.
Diversification does not eliminate the risk of experiencing investment losses. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index.
Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than bonds. International investments involve special risks such as fluctuations in currency, foreign taxation, economic and political risks, liquidity risks, and differences in accounting and financial standards.
 
Investing in commodities

Investing in commodities has grown in popularity over the last few years, and investors can now, more than ever, take part in this ever-growing market segment. Most importantly, adding commodities to the mix could benefit an investment portfolio.
What exactly are commodities? Commodities are raw materials used to create products for consumer use. They include energy products (oil and natural gas), agricultural products (corn and wheat), precious metals (gold and silver), and livestock (cattle and hogs). In addition, soft commodities (also known as “softs”) comprise items such as cotton and sugar that cannot be stored for long periods of time.
How can someone begin investing in commodities? Buying the physical commodity is one approach, but, for practical purposes, it might not be feasible for an investor to buy and hold actual bushels of corn or barrels of oil. Investors have the option of owning stock in a firm that derives its revenue from the sale of physical commodities. Certain sectors such as oil and natural gas, mining, or agriculture are prime examples. Investors can also invest in various mutual funds or exchange-traded funds (ETFs) that focus on commodities.
Historically, adding commodities to a portfolio comprised of stocks and bonds has reduced portfolio volatility without sacrificing potential return. This image illustrates the risk and return profiles of two hypothetical investment portfolios over the past 20 years. The portfolio containing commodities generated a higher return while assuming less risk—meaning it experienced less volatility. Because traditional assets and commodities generally do not react identically to the same economic or market stimuli, combining these assets can often produce a more appealing risk/return tradeoff.
Commodities transactions carry a high degree of risk and a substantial potential for loss. In light of the risks, you should undertake commodities transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading in commodities is not suitable for many members of the public. Carefully consider whether this type of trading is appropriate for you in light of your experience, objectives, financial resources, and other relevant circumstances.
Government bonds are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, while stocks and commodities are not guaranteed and have been more volatile than bonds. An investment cannot be made directly in an index. Diversification does not eliminate the risk of experiencing investment losses. Past performance is no guarantee of future results.
 
Inflation Can Vary By Category

The general inflation number (the “All items” category) may be a good measure for the economy at large, but the cost of certain goods and services could rise much faster than the average cost of living.
For the past year, tuition, food, housing, and medical care have all experienced much higher inflation rates than the headline number. Gasoline prices, on the other hand, have been declining and are now near four-year lows.
People who need to focus on savings for college or medical care may be left short, as the cost for such items often tends to rise at a faster rate than the average cost of living. Those investors might not be able to keep pace with rising costs if they do not take their real inflation rate into account when planning their investment goals.



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