Savvyconsumer:Lookforwaystoimproveinvestmentincome

SavvyConsumer:Lookforwaystoimproveinvestmentincome

PostedThursday,Jan.20,2011

BYTERESAMCUSIC

IndustrywatcherBankratehasreleasedits2011 interestrateforecast,andthenewsisnotprettyforsavers or investorslookingforincome.

"CDswillseesomemarketimprovementin2011,"butnotalot,saidGregMcBride,seniorfinancialanalystatBankrate,whichtracksinterestratesonbankingproductsacrossthenationdailyatitspopularwebsite,

CDsareFDICinsuredandofferafixedrateofreturn,whereasbothprincipalandyieldofinvestmentsecuritiesdohaveriskandmayfluctuate withchangesinmarketconditions.

Moneymarketsonaveragewillseeevenlessofarise,McBridesaid.

"UntiltheFederalReserveBank increasesitsrate-- andtheFedisinnohurryto raiseitsrates

--wewon'tseeimprovementsinmoneymarketaccounts,"hesaid."Atbesttheywon'tgetworse,whichwill beanimprovement."

Ifit'sanyconsolation,FortWorthandsomesurroundingcitiesmaynowbehometooneofthebestmoneymarketaccountratesinthecountry.

LegendBankthisweeklaunchedano-feesavingsaccountcalledSaverthatpays1.25percentaveragepercentageyield(orAPY,whichincludestheeffectsof compounding)onbalancesup to$15,000,saidMikeMonroe,presidentofthebank'sFortWorthbranchat3001WesternCenterBlvd."ItpaysmorethananybodyI'vebeenabletofind,"hesaid.

AsearchatBankrate.comconfirmsthatLegend'stermsareattractive.TheonlyotherbankthatofferedasimilarrateisDiscover BankinNewcastle,Del.,butthatbankrequiresa$500minimumtoopentheaccount.

Theaveragemoneymarketrateforthenationyieldsjust0.7percentwithanaverageminimumdepositof$1,970,accordingtoBankrate.Locally,ratesareeven lower,averaging0.27percentAPY,withChaseatthe lowestrateof .01percentforitsmoneymarketaccount.

ThenewLegendproductdoeshavesomestrings,butoneofthemmaybemoreattractive thanthesavingsaccount. Togetthe newaccount,customersmustsignupforUltimateChecking,ano-costcheckingaccountpaying3.75 percentAPYonbalancesupto$15,000.

UltimateCheckingatthebank hasbeenaroundsince2007andwasfeaturedinthiscolumnbefore.TogetthetopAPY,accountholdersmustusetheirdebitcard12timesamonth,haveat

leastonedirectdepositintotheaccountandacceptonlyonlinestatements.Otherwise,theAPYfallsto.05percent.Thebankalsosaysit willrefundanyATMfeesaslongastheaccountholdermeetsthedebitcardanddirectdepositrequirements.

MonroesaidLegend,acommunitybankbasedinBowiewithsevenotherbranchesincitiesnorthofFortWorth,hassignedup6,000customersinthepast45months.

"Ifyougotothebigboys,you'regoingtoseefee-basedaccountsnow,"hesaid."Thisisstillafreeaccount,andwepayyouinterest.We haveawholedifferentapproachtoourbusinessmodel."

Suchbankproductsmaybeapartialanswertoinvestorswearyofthestockmarket.Historically,thebondmarkethasbeenthealternativeforinvestorsseekinglessrisk.Afteramultidecade

run,however,eventhat'sinquestion.

"Alotofinvestorsstronglyvestedinbondswiththe2008financialcrisisandhavedoneverywellwithoverthelastfewyears,"McBridesaid."But2011verywellmaybetheyearbondinvestorsgetalessonininterestraterisk."

Bondsaregenerallyconsideredasafehavenforinvestorsbecauseoftheirsetreturnsand,oftentimes,governmentbacking.

Butifinterestratesclimb,bondfundscanactuallylosevalue,hesaid,aslow-ratebondsbecomeuncompetitivewithbondspayinghighermarketrates.

Ingeneralthebondmarketisvolatile,andfixedincomesecuritiescarryinterestraterisk.(Asinterestratesrise,bondpricesusuallyfall,andviseversa.Thiseffectisusuallymorepronounced forlonger-termsecurities.)Fixedincomesecuritiesalsocarryinflationriskandcreditanddefaultrisks.Anyfixedincomesecuritysoldorredeemedpriortomaturitymaybesubjecttoasubstantialgainorloss.

Becauseofthat relationship,FortWorthfinancialadviserBurkRosenthal,acertifiedfinancialplanner,willnotputclientsintolong-term bondsrightnow,hesaid.Mostpeopledon'tinvestinindividualbonds,butinbondfundsthatbuyandsellpackagesofbonds,giving themalevelofrisksimilartostockfunds,hesaid.

"AfederallybackedTreasurybondthatyouholdtomaturitywouldbeOK,butyouhavetoholditfor30yearstogetallyourmoneyback,"hesaid."Let'ssayyouhaveaTreasurybondwithayieldof4percentandinterestratesgoup1percentthisyearandTreasurybondsgoupto5percent.Whywouldanyonewanttobuyyourbond?"

Rosenthalsaidheadvisesclientstoinsteadlookatshort-termbonds,fiveyearsorlessinduration,forconservativeinvestorswishingtoavoidputtingalotintothestockmarket.

"Short-termbondsaren'tas muchofaninterest raterisk,"hesaid."Yougiveupa littlebitofyieldandawholelotofrisk."

Justthisweek,Rosenthalsaid,heset upsomenewclientsintheirearly60swithaportfoliothatwas20percentstocks,61percentbondswithanaveragetermof1.79years,andtherestincashandevenshorter-termbonds.Hehasn'trecommendedCDsfor18months,hesaid.

Otherclientsuserealestateinvestmenttrusts(REITs)asanalternativeassetclassapartfromstocksandbondsforsmallpiecesoftheirportfolios,Rosenthalsaid.

Butstockshistoricallywillgiveyouthebestreturns,hesaid.

Onekeytoinvestingistoavoidmakingdecisionsbasedonemotionslikefearorfrustration,Rosenthalsaid.

"Investmentdecisionsshouldnotbeemotionallydriven,"hesaid."Studiesshowthatemotionscanleadinvestorstomakebaddecisionsatthewrongtime."

Atthesametime,adiversifiedportfoliothatisrebalancedaccording toageoftheinvestorandmarketconditionsgenerallyleadstogoodreturns,adviserssaid.

'Whethertheyare25 or85yearsold,investorsshould haveawell-diversifiedportfolioofcashand bonds,butalsostocksand REITs,"McBridesaid."Awell-diversifiedportfolioisgoingtoproduceincomefromitsperformance."

CDsare FDICinsuredandofferafixedrateofreturn,whereasbothprincipalandyieldofinvestmentsecuritiesdohaveriskandmayfluctuatewithchangesinmarketconditions.

Ingeneral,thebondmarketisvolatile,andfixedincomesecuritiescarryinterestraterisk. (Asinterestratesrise,bondpricesusuallyfall,andviceversa. Thiseffectisusuallymorepronounced forlonger-termsecurities.) Fixedincomesecuritiesalsocarryinflationriskand

creditanddefaultrisks.Anyfixedincomesecuritysoldorredeemedpriortomaturitymaybesubjecttoasubstantialgainorloss.

RE/Tsmaynotbeappropriateforallinvestors.CertainRE/Tsmayhavelimitedtransferabilityandlackliquidity. ThevalueofaninvestmentinaREITmayfluctuatebasedoneconomic,regulatoryandenvironmentalfactors. Thevalueoftheunitsofsharesofthetrustwillfluctuatewiththeportfoliooftheunderlyingrealestateproperties. Redemptionmaybeataprice,whichismoreorlessthantheoriginalpricepaidfortheunitsbytheinvestor.

RosenthalRetirementPlanning,LP•lOOE.lS'h Street,Suite100,FortWorth,TX76102•(817)336-2000•(214)752-1000

Theinformationcontainedinthisnewsletterisgeneralinnatureandshouldnotbeconstruedascomprehensivefinancial,tax,orlegaladvice.

Aswithanyfinancialorlegalmatter,consultyourqualifiedsecurities,tax,orlegalrepresentativebeforetakingaction.

Certainstatementscontainedwithinareforward-lookingstatementsincludingbutnotlimitedto,statementsthatarepredicationsoforindicatefutureevents,trends,plansorobjectives.

Unduerelianceshouldnotbeplacedonsuchstatementsbecause,bytheirnature,theyaresubjecttoknownandunknownrisksanduncertainties.

Investmentsseekingtoachievehigherratesofreturngenerallyinvolveahigherdegreeofriskofprincipal.

Diversificationhelpsyouspreadriskthroughoutyourportfolio,soinvestmentsthatoopoorlymaybebalancedbyothersthatdorelativelybetter.

Neitherdiversificationnorrebalancingcanensureaprofitnorprotectagainstaloss.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Rosenthal Advisory Services, LP, a registered investment advisor. Rosenthal Advisory Services, LP and Rosenthal Retirement Planning, LP are separate entities from LPL Financial.

Theopinionsvoicedinthisarticleareforgeneralinformationonly.TheyarenotintendedtoprovidespecificadviceorrecommendationsforanyindividualanddonotconstituteanendorsementbyLPL.