Watch those 10-year periods, local investment team advises

Focusing on a 10-year time frame is a good thing when it comes to investing your money, according to Jim Westphal, senior vice president and partner of the Cobey-Westphal Investment Consulting Group of Wachovia Securities in downtown Milwaukee.
"If you can do that, don’t worry about what’s going to happen next week or next month or even the next year," says the 20-year investment industry veteran, who with his partner John Cobey formed their company almost three years ago.
The key, Westphal says, is to determine your income needs, properly allocate stock market investments for 10-year periods and "stay the course."
"The market goes through cycles that might not be predictable but which are familiar to those of us who have experienced it over the years," he says. "Not that we saw this last cycle coming and knew that things were going to be as dramatic as they are, but history tells us that, over time, these things are going to happen. It also tells us that over the last half of the 20th century, common stocks have grown about 12% each year."
So Cobey-Westphal and its clients discuss the risk side of the investment equation and determine a proper allocation of their investments designed to reduce risk. It’s a long process, but worth it, Westphal believes. "We need to balance one asset class against another to decrease volatility and increase the probability of a positive return," he says.
The firm’s money managers allocate their clients’ investments on large cap stocks, small caps, mid caps, international and global.
"These are basic to any good long-term asset allocation process, and putting those together in the right mix and sticking with the balance strategy is very important," according to Westphal. "Mathematically, if one class does better than the others, then your mix gets a little out of whack and you have to rebalance it. Our money managers run the investments for us and we manage them," Westphal says.
Then his firm builds bond ladders for its clients to assure income or cash flow, whatever a person is looking for, over rolling 10-year periods of time. Once that’s done, it’s easy to put everything else into the market for long periods of time, according to Westphal.
Building a bond ladder, he explains, involves buying zero-coupon government bonds that come due in one year, two years, three years, all the way up to 10 years.
"Because these are zero coupons, you pay less dollar amounts for 10-year bonds than you do for the one-year bond," Westphal said. "A good example today would be a three-year bond, which might cost you 94 or 95 cents on the dollar. A 10-year bond might cost you 65 cents on the dollar. When they mature you get back the dollar. You don’t get the interest on the way; you’re simply getting the money back at maturity. By buying a new bond every year out, in the 10th year you basically dollar cost average into a 10-year rate. It comes down to simple math," he says.
According to Westphal, if you look at volatility and the effects of time, you will mitigate much of that risk by making a good allocation decision, staying the course, and monitoring that course. "I believe that for most people over a long period of time, all your investments should be in the stock market, because that’s where better returns are over that long period of time."
Westphal also believes that the stock market is still good for retirement age investors. The key again is asset allocation, he says. "The old axiom that you should have a percentage of your money in the bond market equivalent to your age doesn’t work with the amount of money people have accumulated in this day and age. Those who are 70 years old and have saved $2 million don’t need to have 70% in the bond market. If we’ve come up with the proper asset allocation and covered their income needs, the balance of their money should be in the stock market."

April 4, 2003 Small Business Times, Milwaukee

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