Know Your Finances - Chadds Ford Live

It’s been a long, tough, slog of a market. Last year was depressing, with a capital D, as the broad market as measured by the S&P 500 lost 37 percent, the second worst annual decline ever (the worst was in 1931 with a decline of 44percent). This year so far hasn’t been any great shakes either, but at least we have rallied significantly off of the March 9 lows. It is worth noting that during the last 80 years there have been 24 down years and 56 up years. That means that 70 percent of the time markets go up!

Comforting as that percentage may be, never forget that stock valuation is always critical when you buy stocks. There are times when entire asset categories are a compelling buy and times when they should be avoided. When stocks overall appear cheap, there will still always be stocks to avoid and stocks to invest in. My mantra as an investor for more than 20 years now has always been: Valuation, diversification, and patience!

Unfortunately, it’s difficult for the average Joe who is not spending hours each day happily scrutinizing financial statements and 10K reports, to get their arms around value. Mutual Funds and Exchange Traded Funds help investors to at least diversify, and they usually are quite liquid, but don’t ever think that every fund manager is a talented stock picker. Also, mutual and exchange traded funds are not customized for a particular investor’s unique tax and risk tolerance framework.

If you need help, hire a professional advisor who will act as your investment fiduciary to protect and grow your assets at the lowest cost. I know it’s scary to trust someone -- steer clear of men named Madoff -- but a starting point is to ask your friends for a referral and check out some guidelines for choosing an advisor by going to the Financial Industry Regulatory webpage, www.finra.org. They have an excellent section on Selecting Investment Professionals. I will talk more about the differences between brokers and planners and advisors down the road.

So, what was the recipe for the financial mess we’ve been in for more than a year now? We started with a base of unnaturally low interest rates after the tech bubble and decades of unchecked growth of debt. Then we built a more recent layer of lack of due diligence by mortgage brokers, lenders, and investors, which created billions of dollars of untenable loans. Finally, the icing on this not very tasty cake was deficient oversight by credit-rating agencies and an enormous growth in complex derivative financial products that multiplied the risks exponentially.

The financial industry pendulum will surely swing towards clarity, simplicity, and accountability. Fear not, our economy and markets will recover. There are many strong and viable and undervalued companies to invest in. Don’t follow the herd! If you are a long-term investor, be conservative and only buy quality stocks and bonds, but do invest. Bonds and CDs will not be the best investments if interest rates rise from current levels. And remember every asset class has its valuation cycles. The best thing to do is to diversify your money, buy quality assets, understand what you are buying, and avoid hidden and costly fees. Say ”No,” to hedge funds, variable annuities (though we definitely like fixed income annuities for certain investors and situations), and derivatives, and avoid financial professionals who get paid by the investment products they buy for you (I call these people “product pushers;” they do not act as an investment fiduciary.)

I will be writing about a variety of financial topics: economic issues, retirement plan rules, tax savings techniques, industry laws, local stocks of interest, interesting mergers, etc. I envision this column to be educational and useful to many of you. I hope you will participate and help me to make it your column!

Please submit your questions to: [email protected]. And write “Chadds Ford Live” in the subject line. I look forward to receiving your questions and look forward to growing and learning with you through this column.

• Ellen Le is the founder and president of Ascend Capital Management (www.ascendcapmgt.com). She has been a financial planner and investment advisor for more than 20 years.

About Ellen Le

Ellen is the Founder and President of Ascend Investment Management. She was born in Philadelphia and has lived in the Delaware Valley for most of her life. When she is not researching investments and managing portfolios, she pursues her interests in tennis, bridge, hiking and art. Beginning her investment career in 1981 as a stockbroker at E.F. Hutton and Co., Ellen now has over 20 years of investment management experience. Prior to founding Ascend in 2006, she managed high net worth assets for many years at Bank of America, Mellon Bank, and most recently at Davidson Capital Management. At Davidson Capital Management, Ellen served as a Senior Vice President and Senior Portfolio Manager of the firm. She managed assets for more than 50 family relationships and was a core member of the firm’s Investment Committee.Ellen earned a BA in History from Brown University and a MBA in Finance & Investments from The George Washington University. She is a member in good standing of the Chartered Financial Analyst (CFA) Institute, which is a global organization dedicated to setting a high ethical standard for the investment profession. Her professional memberships include the Delaware County Estate Planning Council, Women Enhancing Business (WEB), and the Chadds Ford Business Association. She is a docent with the Delaware Art Museum and an active volunteer with the Brown University Alumni Association.