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Over the course of time we come across articles that we feel like would benefit our clients. Below are some recent articles that we would like to share with you. Click on the articles below to help you research your investments and increase your financial literacy. Enjoy!

If you’re looking for an investment-income source, you may want to consider adding dividend-paying stocks to your portfolio. They may be especially appealing to retirees or investors who aren’t comfortable with a lot of risk. It becomes difficult for retirees to watch the fluctuations in the stock market on a daily basis. Do you look at the fluctuations in the price of your house every day? It is important to keep your eyes on what really matters; investing in strong companies that have consistently paid a dividend or have grown their dividends over time to help provide income during your retirement years. Below are some additional thoughts on dividend paying stocks.

Going With the Flow

Some companies, such as utilities and financial institutions, pay cash dividends to stockholders on a quarterly basis. These stocks may experience less volatility than stocks that don’t pay dividends. When the stock market declines, investors tend to seek out dividend-paying stocks, boosting the stocks’ prices.

Dividends may also be appealing because they receive favorable tax treatment. For investors in higher tax brackets, the tax rate they pay on qualified dividend income could be significantly less than the tax rate they pay on other types of ordinary income, such as interest.

Following Your Own Current

Dividend-paying stocks are an investment option even if you’re not looking for income. You can reinvest the dividends in additional shares of stock and benefit from compounding. Plus, the value of your stock could go up due to price appreciation. Keep in mind, however, that you must still pay tax annually on dividend income — even if it’s reinvested.1

Don’t Get Swept Overboard

Also keep in mind that dividends aren’t guaranteed. Choose your dividend-paying stocks carefully since some companies may increase dividends to attract investors if their finances aren’t watertight or their image is murky.

Looking at the dividend yield can help you evaluate a stock’s dividend-paying history. Of course, just having a high yield doesn’t mean the stock is definitely a good investment, and past performance doesn’t guarantee future results. The amount of any dividend may vary over time.

Your financial professional can help you determine if a dividend-paying stock is a good fit for your portfolio.

Source/Disclaimer:

1Companies that offer dividend-paying stocks cannot guarantee that they will always be able to pay or increase their dividend payments.



Required Attribution


Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Diversification is a basic concept that’s critical to building a portfolio able to withstand the test of time. It is the process of spreading your money among a variety of securities to reduce exposure to any one investment or asset class. The premise behind diversification is easy to grasp: When you diversify across a range of investments, you may reduce risk by creating the potential for better performers to compensate for poor performers.

Effective diversification involves more than simply owning a jumble of different investments. It means selecting a mix of securities that may not react the same to a given set of conditions — investments that carry a low correlation to one another. Correlation is a statistical measure of the degree to which two securities perform the same under particular market conditions. For instance, if you choose stocks of two companies that make the same product and serve the same market, chances are that they will move in tandem when conditions affecting their industry change. Owning both would be unlikely to lower risk in your portfolio. Alternatively, owning stocks of companies that operate in different segments of the economy may help improve your risk-adjusted return, although past performance is no guarantee of future results (see chart).

Diversifying by Industry1

As this chart demonstrates, combining stocks from different industries or sectors — Consumer Staples, Information Technology, Financials, and Materials in this case — may potentially result in a portfolio that has less risk than the individual industries or sectors. Of course, the portfolio may also have somewhat lower returns than some of the individual industries or sectors — a trade-off that long-term investors may be willing to make.

Diversification vs. Asset Allocation

On its most basic level, diversification can be applied to asset classes by allocating your investments among the three fundamental asset classes: stocks, bonds, and cash. Your asset allocation is the percentage of money you decide to put into each asset class based on your goals, risk tolerance, and time horizon. Technically speaking, asset allocation may potentially reduce market risk; diversification potentially reduces company-specific risk. Together, they may help reduce portfolio volatility over time. Keep in mind that neither diversification nor asset allocation guarantees against investment losses.

Both asset allocation and diversification are particularly important when a market takes an unexpected downturn. In such a shift, some investments are inevitably affected more than others, and the overall effect of a downturn on a diversified portfolio may potentially be mitigated. Consider the investor who invested 100% in financial stocks at the beginning of 2008 (the last year the stock market as a whole declined), as represented by the total returns of the S&P 500 Financials index. He would have lost approximately 55% of his investment by the end of the year. If the same investor had diversified his holdings to encompass a broad representation of all stocks by investing, for instance, in an index fund that paralleled the S&P 500 index, he would have lost only about 37% over this period. If the same investor had further diversified his portfolio by allocating 20% to cash and 30% to bonds and invested the remainder in the same S&P 500 index fund, he would have narrowed his losses to about 16%.2

Putting Concepts to Work

The first step in building a diversified portfolio is to determine your asset allocation. How you diversify your portfolio among stocks, bonds, and cash will depend upon your specific goals, your time horizon, and your risk tolerance. A financial advisor can help you determine an allocation that suits your specific needs. You’ll also want to revisit your asset allocation on an annual basis, making appropriate alterations depending on your goals.

With your allocations determined, you’re ready to begin choosing investments for each asset class. Here, you have two basic options. The first is to research and assemble individual securities for your stock, bond, and cash allocations. Taking this route, however, can require a significant amount of research. In addition, you would need to commit adequate time to monitor and manage the individual securities.

Alternatively, you could diversify by selecting a mix of mutual funds or exchange-traded funds. Because they hold baskets of securities, such pooled funds provide instant diversification, although the degree of diversification varies depending upon each fund’s investment strategy. A fund that replicates a broad market benchmark such as the S&P 500 would provide greater diversification than a fund specializing in one sector of the economy, such as utilities or health care.

Diversifying by Investment Type or Style

Within the different asset classes, you can also diversify your holdings by investment type or style. For stocks, there are a number of different styles to choose from: growth vs. value, large-cap vs. small-cap, domestic vs. foreign, or sector/industry. These and other style groups are all represented by numerous mutual funds that may react differently to market circumstances.

For bonds, there are many different types to select from. You may choose to diversify by type (government, agency, municipal, corporate), maturity, credit quality, or specific bond features, keeping in mind that different bonds react differently to market interest rates and other factors.

However you choose to diversify your portfolio, remember that diversification works two ways. Although it can cushion the impact of a falling market, it can also dilute returns on the upside. Ultimately, you should balance your degree of diversification with your overall appetite for risk.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Source/Disclaimer:

1Source:ChartSource®, DST Systems, Inc. For the period from January 1, 1990, through December 31, 2017. Sector performance based on the performance of the GICS sectors of the S&P 500 index. Real estate data begin from September 2006. It is not possible to invest directly in an index. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. Past performance is not a guarantee of future results. © 2018, DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions. (CS000133)

2Source: DST Systems, Inc. Bonds are represented by the total returns of the Bloomberg Barclays U.S. Aggregate Bond index. Cash is represented by the Bloomberg Barclays U.S. Treasury Bill 1-3 Month index. Individuals cannot invest directly in an index. Past performance is no guarantee of future results.



Required Attribution


Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Investing internationally has grown rapidly in recent years. The bias for investing only within our national borders is diminishing, as an increasing number of individual and institutional investors boost their international exposure to pursue their investment goals. Behind the trend toward international investing are the realizations that the global market can offer attractive opportunities for investment and that diversification abroad can help reduce risk.

The Investment World Grows Larger

In 2015 foreign markets represented 58% of the world’s investment opportunities. It is estimated that by 2030 the U.S. stock market will represent just 38% of the world market.1

Diversification and Higher Returns

The quest for diversification and higher returns are driving forces behind the internationalization process. When U.S. investors began to invest in foreign equities, a key reason for the move was increased diversification. Because international markets do not always move in sync — some may zig while the others zag — diversification on a global scale may help offset the effect of a downturn in the U.S. market. Investors in international securities may face additional risks, such as higher taxation, less liquidity, political problems, and currency fluctuations, that do not affect domestic investors. But despite these risks, the potential for higher returns and diversification makes these markets attractive to many investors.

As investors around the world become more sophisticated and aggressively explore investment opportunities, they find that the global arena can offer competitive returns. The MSCI Europe, Australasia, Far East (EAFE) index, which tracks 23 major world markets, posted a 5.95% annualized rate of return for the 30 years ended December 31, 2016, compared with the 10.16% annualized return of Standard & Poor’s Composite Index of 500 Stocks (S&P 500).1 Past performance does not guarantee future results.

This difference in returns is due in part to differences in economic and market environments in countries around the world. For example, the Japanese market throughout the 1990s was depressed due to the country’s economic recession. Many Japanese stocks became undervalued. In 1999 the Japanese stock market bounced back, producing a gain of more than 60%.2

How to Invest in Foreign Equities

One way you can include international exposure in your portfolio is to invest in stocks of U.S. companies that derive a large portion of their annual revenue from overseas markets. Examples of such companies are Coca-Cola and McDonald’s.

You can also buy stocks of foreign companies through American Depositary Receipts (ADRs) — traded on the New York Stock Exchange — and through mutual funds that invest in foreign companies. ADRs are negotiable certificates that represent the shares of a publicly traded foreign company. ADRs are issued in the United States and their underlying shares are held in U.S. banks.

But familiarizing yourself with international markets (including the regulatory, political, and economic environments) is time consuming, and access to company information can be difficult to obtain. An easier way to invest internationally is to buy shares of broadly diversified international mutual funds or exchange-traded funds, which invest exclusively overseas, or global funds, which may buy a mix of foreign and U.S. stocks. These types of funds offer instant diversification through an array of foreign market stocks.

For more experienced and more aggressive investors wishing to target stocks in particular regions or countries, regional or country funds are also available. These funds are designed to take advantage of specific opportunities in the world’s developed and emerging markets, but they do carry an increased risk of volatility.

International investing does present unique risks and considerations. A U.S. investor’s foreign-investment return depends on both the local currency’s exchange value against the U.S. dollar and the stock price in the local currency. For example, falling currency values and plummeting stock prices in Asian nations in 1998 not only drove down stock prices for international investors in Asia, but also in the U.S., because many American companies depend on Asia for customers. For U.S. investors, currency losses could also stem from a rise in the dollar’s value against the currency of the foreign country they are investing in. In the past, currency fluctuations have tended to balance out over extended periods of time, although there are no guarantees this will always be the case. Maintaining a long-term perspective and diversifying international investments can help minimize these risks.

Source/Disclaimer:

1Sources: DST Systems, Inc., World Federation of Exchanges. 2030 estimate based on the relative growth rates of the weights since 1975. Index performance is not indicative of the performance of a particular investment, and past performance does not guarantee future results. Individuals cannot invest directly in any index.

2Source: DST Systems, Inc. Based on total returns of the MSCI EAFE and S&P 500 indexes in U.S. dollars. The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. The EAFE is an unmanaged index generally considered representative of the international market. Index performance is not indicative of the performance of a particular investment and past performance does not guarantee future results. Individuals cannot invest directly in any index.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Sports commentators often predict the big winners at the start of a season, only to see their forecasts fade away as their chosen teams lose. Similarly, market timers often try to predict big wins in the investment markets, only to be disappointed by the reality of unexpected turns in performance. It’s true that market timing sometimes can appear to be beneficial. But for those who do not wish to subject their money to such a potentially risky strategy, time — not timing — could be the best alternative.

What Is Market Timing?

Market timing is an investing strategy in which the investor tries to identify the best times to be in the market and when to get out. Proponents maintain that successfully forecasting the ebbs and flows of the market can result in higher returns than other strategies. Critics, however, note that changes in a market trend can appear suddenly and almost randomly, making the risk of misjudgment significant.

Market Timing Has Its Cost

One of the biggest costs of market timing is being out when the market unexpectedly surges upward, potentially missing some of the best-performing moments. For example, an investor, believing the market would go down, sells off equities and places the money in more conservative investments. While the money is out of stocks, the market instead enjoys a high-performing period. The investor has, therefore, incorrectly timed the market and missed those top months.

The opposite of market timing is buying and holding as the market goes through its cycles. This table illustrates the potential results from poor market timing compared with buying and holding.

The Risk of Missing Out

 

1987-2016

1997-2016

2007-2016

[1]

Untouched

$18,234

$4,394

$1,957

[2]

Miss 10 Top-Performing Months

$7,007

$1,865

$902

[3]

Miss 20 Top-Performing Months

$3,299

$951

$551

Perhaps the most significant risk of market timing is missing out on the market’s best-performing cycles. The three columns represent the growth of a $1,000 investment beginning in 1987, 1997, and 2007, and ending December 31, 2016.

Row 1 shows the investment if left untouched for the entire period shown above; Row 2 shows the investment if it was pulled out during the 10 top-performing months; and Row 3 shows the investment if it was pulled out during the 20 top-performing months.

Source: ChartSource®, DST Systems, Inc. Stocks are represented by Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. © 2017, DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved.

Not responsible for any errors or omissions. (CS000078)

Past performance is no guarantee of future results.

 

Regular Evaluations Are Necessary

Buy and hold, however, doesn’t mean ignoring your investments. Remember to give your portfolio regular checkups, as your investment needs will change over time. An annual review can help ensure that the investments you select are in keeping with your goals and time horizon.

Time Is Your Ally

Clearly, time can be a better ally than timing. The best approach to your portfolio is to arm yourself with all the necessary information, and then take your questions to a financial advisor to help you with the final decision making. Above all, remember that both your long- and short-term investment decisions should be based on your financial needs and your ability to accept the risks that go along with each investment. Your financial advisor can help you determine which investments are right for you.

 

Required Attribution


Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.