Sound Asset Management Inc.
Russell Wayne is a Certified Financial Planner and President and Chief Investment Officer of Sound Asset Management, Inc., an independent financial advisor based in Weston, Connecticut primarily serving clients in the greater New York tristate region and throughout New England.
Russell began his career with Arnold Bernhard & Co., Inc., the parent company of Value Line, Inc. Positions he held while associated with Value Line included Managing Editor, The Value Line Investment Survey; Portfolio Adviser, The Value Line Mutual Funds; Executive Editor, The Value Line OTC Special Situations Service; Business Manager, Value Line, Inc.; Portfolio Manager, Value Line Asset Management; and Director of Investment Software, Value Line Software.
From 1991 to 1995, Russell was Vice-President and Chief Investment Officer with Heine Management Group. He was also Vice-President and Secretary of the LMH Fund, Ltd. Clients for whom he has managed portfolios include Xerox, Texas Utilities, National Maritime Union, and United Cerebral Palsy Association.
Russell has been a featured guest on television, including CNN and the Bloomberg Network. He has been quoted in leading business periodicals, including The Wall Street Journal, Barron's, BusinessWeek, The Wall Street Transcript, The New York Times, and Investment News,MSNBC, and Yahoo! Finance.
Russell earned his B.A. and M.B.A. at Hofstra University. He earned his Certificate in Financial Planning from Florida State University and has pursued postgraduate studies at New York University School of Law. He is listed in Who's Who In The East, Who's Who In Finance and Industry, Who's Who In America, and Who's Who in the World. Russell has contributed to a number of published works. His latest book is Markets, Myths, and Memories, which was published in November, 2010. Russell is a proud member of the National Association of Personal Financial Advisors.
M.B.A. (Finance and Investments). B.A., N.Y.U. Law, Hofstra University
Certified Financial Planner, Florida State University
Assets Under Management:
You have a very long time horizon, which suggests that you should be 100% in stocks. In the past, there has never been a 20 year period where stocks didn't outperform bonds. Your prospective time horizon is more than twice that. What's more, we've just concluded a three and a half decade rally in bonds as interest rates went from the mid teens down to almost zero. Now that interest rates are rising, the outlook for bonds is not at all encouraging. As interest rates rise, bond prices go down. Shorter maturities will be less affected, but the rates on short bonds are so low that they serve no purpose for you. At this juncture, you should avoid bonds completely.
As per your question about Betterment or Wealthfront, I'd opt for the lowest cost arrangement that allows you to select a 100% equity portfolio including a substantial percentage in emerging market holdings. Years from now, when interest rates have stabilized, you may want to revisit this asset allocation recommendation, but for now, equities only is the route for you.
It would be helpful to learn your mom's age as well as her need for current income. Another question is whether you are referring to a fixed or variable annuity. In the case of a fixed annuity, the annuitant turns over the funds in return for a guaranteed regular payment over a specified term, which could be expressed as lifetime or a period of years. Once the funds are transferred, they are gone. In the case of a variable annuity, the funds can be invested in a variety of different securities, which typically would be mutual funds in different asset classes such as stocks, bonds, or alternative opportunities. Unlike a fixed annuity, the funds are still owned by the annuitant and the value of the annuity can fluctuate, both up and down. Usually, it is not guaranteed.
Annuities are insurance products and the fees are often quite high, more than those that would be incurred with direct investing in the securities rather than through an intermediary. So, based on your comment that she has more than enough money to provide for her remaining years, my sense is that an annuity would not be a good idea, but I'd need additional information to properly respond to your question.
The prices of bonds move in the opposite direction of interest rates. When interest rates are moving higher, the prices of bonds move lower. Last December, when the Fed raised rates by 0.25%, that was the beginning of the current interest rate upcycle. Next month, we will most likely see another hike of a similar amount. When rates generally move up, prices of other fixed income securities will also change to keep their yields in line with the prevailing interest rate yield.
From 1980 until quite recently, interest rates slid from the mid-teens to just a notch above zero. The slide led to a three-decade bond rally. As rates went down, bond prices rose. But when rates are at rock bottom, as they have been since the Great Recession of 2008-9, there's only one direction for them to go: up.
The incoming administration is hoping for an acceleration of business activity. This will almost certainly be accompanied by rising interest rates. That will be a headwind for bonds, utilities, and other interest-rate sensitive issues.
Yes, the recent price changes may be an overreaction, but there will probably be exposure to further weakness as rates move higher.
One worthwhile possibility for reducing your expenses would be to redeploy to exchange-traded funds. In most cases, you will be able to find ETFs with objectives that are similar to those of the mutual funds you hold. The difference, however, is that the expense ratios of the ETFs will almost always be considerably lower than those of the mutual funds.
Stabilizing is a separate issue. That depends upon your asset allocation. Generally speaking, the higher the allocation to equities, the greater the risk exposure. Within the equities area, risk will be higher for small cap companies and lower for large cap companies. If you are investing aboard, you will probably find that risk is higher for emerging markets and lower for developed markets.
Without knowing more about your situation, it may be worthwhile for you to reduce your equity exposure, particularly in small cap companies and emerging markets. At the same time, you would increase your fixed-income percentage, primarily in short to intermediate term maturities. Avoid longer maturities since they would be more exposed to the negative effects of rising interest rates.
The logic for keeping your assets in the plan makes little sense. Since 2007/8, the overall level of stock prices has risen so both your assets and the market are higher. It's not as if the plan assets have not risen while the market has. What's more, I don't see how you would be losing the 5.1% gain.
When you roll over to an IRA in a brokerage account, you would get a far broader selection of investment vehicles than are available in most employee retirement plans. That would be a better choice than simply rolling into only one fund, in which case, there would be no choice other than whatever the holdings of that fund would be.
There are other important issues. Back in 2007/8, the bond market was still rising while interest rates were going down. That phase is over. Interest rates have begun to rise and will continue to do so for the next couple of years. When rates rise, the value of fixed-income investments (bonds) goes down.
Furthermore, with most plans, your ability to reposition your assets may be limited to specified intervals. With a rollover IRA, you would have no such limits.
So the bottom line is that what these "advisors" have told you makes no sense.