Managing your investment expectations – Terry Lockridge & Dunn, LIVING WELL Magazine

Managing Your Investment Expectations

By Timothy F. Terry, Founder, Terry Lockridge & Dunn / World Trend Financial, Linn County LIVING WELL Magazine

It’s tax time. This is an excellent opportunity to see just how well your investments performed last year. It is also a great time to think about your taxes. In both of these areas, planning is everything!

Let’s start with the investments. Have they performed to your expectations? If not, you have two choices: change your investments or change your expectations. For most, changing investments might be the easiest. You simply dump the losers and buy some winners. However, before you pick up the phone, I recommend you take a good hard look at your expectations. First, we need to decide if they are realistic. If you have all your funds in bank certificates of deposit, it is not likely you will see a yield approaching 5% for many years. On the other hand, having your portfolio in a basket of high growth common stocks may prove equally disappointing if you are expecting a quick economic recovery.

I suggest simply starting with what you need to draw annually from your investments. Divide that amount into the total of your investment assets and this will tell you what your investments need to yield in order to avoid dipping into your savings. While this is an overly simplistic approach, I find it an excellent reality check. If your answer is greater than 5%, you have some serious work to do if you do not want to run out of money.

If the answer is less than 5%, you are not out of the woods. Since sensible, risk-free fixed income investments are not currently yielding anything approaching this rate, you will need to carefully balance risk and return. In this regard, a good financial planner is indispensible. This person should be able to assist you in mapping out a sensible plan that not only deals with reality, but also withstands the unexpected events that will certainly be in your future. In other words, the EU debt crisis is just the crisis du jour. Expect more. Your investments should be designed to allow you to not only face these challenges, but also prosper in the process.

Once you have determined your investments and expectations are in the same zip code, it is time for smart tax planning. A smart tax accountant and investment advisor will pay handsome dividends in helping you coordinate the planning involved in both. After all, there is nothing wrong with paying less than 15% taxes on your investments despite all the political hoopla.

Reach Terry Lockridge, & Dunn/World Trend Financial at their Cedar Rapids location, 319-364-2945, or their Iowa City location, 319-339-4884.