These Are Uncertain Times For investors. As the Greenspan era — a period that included one of the longest economic expansions in history — came to a close, we witnessed successive interest rate hikes, exorbitant oil prices, and the cooling down of the once-torrid housing market. One of the chief concerns among individual investors has been the elimination of pensions and the restructuring of retirement plans. These developments come as the first crop of baby boomers turns 60.
So as Ben Bernanke, the new chairman of the Federal Reserve Board, settles into his post, the investment environment remains disconcerting to many. To help you figure out your next step in preserving and building your wealth, we have assembled a group of top financial professionals for our semiannual investment roundtable. Members include Gail Perry-Mason, first vice president of financial services at Oppenheimer & Co., an investment advisory firm, and co-author of Girl, Make your Money Grow! A Sister’s Guide to Protecting Your Future and Enriching Your Life (Broadway; $19.95); David Hinson, principal of New York-based Wealth Management Network, a consulting practice dedicated to assisting clients in the creation, preservation, and transfer of wealth; Jan J. Williams, an estate planning specialist with AXA Advisors in Atlanta who deals with business owners and professionals; and Dale Bryant, who operates The Bryant Group, an investment firm that caters to small investors.
BLACK ENTERPRISE: What is your market outlook for 2006?
Gail Perry-Mason: In the United States, it’s going to be slow growth. I still think there is growth there. No matter who you are or what you do, there is always some opportunity. You’re going to get opportunity with diversification. Our firm is looking at maybe 8% but more overseas.
David Hinson: I think 2006 is going to be a very good year for investing. I think, though, that we are going to see a lot of volatility in the market. Over the past couple of years, much of the returns have been made in spurts, short periods of time. Last year, we sweated out the market until the fourth quarter, when there was a rally in which most people got 80% to 90% of their total return for the year within a two-month period.
I think we’re going to see an increase this year in market volatility because the issues that we are facing in the U.S. economy and the global economy are fairly traumatic. But I believe that we will see that stocks will outperform bonds in 2006. I believe that active management will outperform passive management. I believe that international equities and emerging markets will outperform U.S. equities.
Jan J. Williams: I am an optimist. For 2006, what the African American community has to do is get smart and outsmart the rest of society and not get caught up in a U.S.-only focus and what U.S. politics say should be done.
The world is a global market now like never before. There is no historical precedent. Never before have we had emerging markets that have stabilized. In previous times, we always had emerging market opportunities, but there was always a lot of risk associated with [them] because of the political situation in those countries and also the lack of an infrastructure to build on.
Now, you look at emerging markets and they have exceeded us. For example, if you look at India, Pakistan, Indonesia, Malaysia, you look at the industries there [that have been] built with brand new technologies, facilities, and production capacities — all new infrastructure that is far ahead of where we are. So when we look at emerging markets, we have to look at them from a different standpoint: not as very risky anymore but as the new frontier. That’s where we need to be investing, to take advantage of where the future growth is going to take place.
BE: So are you saying that we will see little growth in the U.S. market in 2006?
Williams: Well, surprisingly, in the U.S. market, there will be growth. And I advise my clients to focus on those corporations In the U.S. that have a foreign presence. Even in the auto industry, Ford’s stock is down but Ford sold more cars in China last year than any other foreign automaker.
Dale Bryant: I don’t know what the outlook for 2006 is but I think that, especially for my types of clients [who don’t have] a lot of money, it’s really all about the accumulation, the creation of assets. It is important to be exposed in a big way to the sectors that are going to grow your asset base over the long term [and] through various cycles of the business economy. One of the most important things for 2006 is the direction of interest rates.
BE: Do you think the incoming Federal Reserve Board chairman will advocate the easing of interest rates or do you think he is going to continue to raise interest rates this year?
Hinson: Right now the yield curve is flat. (The yield curve spread is the difference between short-term and long-term interest rates.) The difference between the 10-year [yield] and the two-year is next to nothing when you’re talking basis points. So the real risk is if there is further tightening, [it will create] an inverted yield curve.
Now keep in mind, for recessions since 1950, all of them have been preceded by a flat or inverted yield curve. The question is if there is continued tightening, will that necessarily push this economy into a recession. My personal feeling is that starting out in your term as Fed chairman, the last thing you want to do is to create a recession.
I think that they will wait and see what is going to happen once the tightening from the past and most recent [hike] actually goes to the market. What kind of impact would that have on housing prices? Will housing continue to cool off? So, from where I sit, I think that there are going to be pockets of rallies that occur in the market.
Williams: Initially, there is not going to be a raise in interest rates because of the fear that it may trounce an already cooling housing market. That’s going to be the brake that is going to hold it in place. However, rising oil prices and competition for foreign investments are factors that could actually drive up interest rates.
As a nation, we are in so much debt to foreign countries we must make our debt load attractive to foreign investors. If foreign investors see that they can get a better return by investing in bonds of other nations, the only way we’re going to continue to draw that huge amount of foreign input — investments that are required to service our debt load — is to raise interest rates just to make them attractive. So we have some factors that are totally out of our control that could force the Fed to continue to raise interest rates.
BE: In this environment, what should investors and consumers do to preserve wealth?
Perry-Mason: When I sit down with my clients to talk about getting their budget together, I always tell them that we need to make some layoffs [in] our spending plan. Ford Motor Co., General Motors, and Chrysler are still making layoffs. Then what are you going to have to lay off? That’s when it comes to laying off the SUV, laying off different things in your spending plan so we can put money toward something else.
Hinson: When you are looking at higher costs, every investor, every consumer, needs to deal with the overall issue of how to manage those costs. Part of the solution, on a personal level, is to re-evaluate your budget.
From an investment standpoint, one strategy is to invest in hard assets. I believe investing in hard assets is a very solid way to invest your money when you are staring down higher prices [and] higher interest rates. Many of our clients are business owners. [They should] reinvest in businesses, expanding [them] to try to create more revenue.
If you are an employee working every day, you need to find a secondary source of income. One way to do that is to start a small business on the side. If you are
an employee and that’s where you are getting 100% of your income, you essentially [have] no tax benefits beyond mortgage interest, and that’s if you own a home. You can call a 401(k) plan a tax-savings vehicle, but ostensibly, all of the tax benefits accrue to those people who own businesses. [If you own a business], you can push some of your after-tax savings expense to pre-tax expenses, thereby lowering your overall cost structure.
Bryant: If there were going to be continued interest rate hikes and [your goal was] asset preservation, then you could move out of things that have given us a really good run in the last three years into more conservative things or underperforming things.
If you are a new client [of mine], you are talking about asset classes that have underperformed in the last business cycle that probably will come back around. If you are an existing client [and] you already have your asset allocation percentages laid out, you would redirect money into things that happen to have been underperforming in the last couple of years. Redirect the money invested in energy into those underperforming assets.
Williams: Very good point. I would not, at this stage, recommend that anyone invest in the energy sector because it has had a good run. However, one of the focuses of my portfolio is to constantly rebalance: selling high and buying low and moving into sectors that have underperformed.
It’s very hard to get a client to pull money out of an asset class that is giving them a 30% or 40% return. That’s what they have to do. If you don’t have any losers in your portfolio, you have a very poorly designed portfolio.
Perry-Mason: I try to tell my clients that we need an exit strategy for once [a stock] gets to that certain amount. You don’t want to get greedy or [experience] what happened to [investors during] the tech wreck. But it is so difficult to get a client to rebalance and to say, ‘I want you to take [money out of stocks that] had a great run.’
Hinson: When you have markets where there is uncertainty and there is volatility, you have to have, in my view, a very, very specific buy strategy and a very specific sell strategy. I try to create portfolios that have all positive situations because we are constantly pruning. But we have certain [buy] parameters and we have certain sell parameters.
If an investment is not hitting the return numbers, I’m going to get rid of it. If a managed account or mutual fund is not performing up to the level of its expectations, I’m going to get rid of it. We believe in constantly re-evaluating, but when there is a lot of volatility, you have to be crystal clear as to how much pain you are willing to suffer on the downside. To the point on getting tremendous returns on the oil investments, once you hit that point it’s time to take those profits off the table, take the tax hit, and reinvest those [assets] into other things. But your strategy needs to be defined.
Williams: We always do what is called an investment policy statement for each client based on his or her goals and objectives. That’s a policy statement you build a portfolio around. Now, if that investment policy statement says that we are going to be moderate investors, then that means that we are going to have a certain percentage of our assets in certain asset classes.
If I say a client should have, based on his investment strategy, 20% in international, and the international sector gets up to 25% or more, we bring it back down to 20%. We will do a mandatory rebalancing, at least once a year, because we don’t want clients to get caught up into another tech wreck. That will happen in any sector.
Hinson: I think that the overriding theme is chasing returns. When you start talking about protecting clients, the biggest challenge is to get them out of the habit of chasing returns because if [you] don’t have a disciplined strategy, the market will punish you.
BE: What sectors should investors move their assets into in 2006?
Williams: There are several sectors that I would recommend that every client take advantage of or at least consider. One is the healthcare sector. There are going to be a lot of pros to that sector, simply because of the demographics. You have the baby boomers getting older, and we’re popping pills like drugs. We’re doing everything from having knee aches to backaches to getting face-lifts [and] butt lifts. We are the first generation of aging Americans who absolutely have no desire to look or get old. I would say look for fund families [and] fund managers who do a great job in that sector. Don’t try to pick individual stocks because it’s just too difficult. I would recommend the Alger Health Sciences Fund. They have a very good one focusing on small and midcaps. On the large-cap side, there is the Eaton Vance Worldwide Health Sciences Fund.
Another area I would say investors should add to their portfolios is international equities and international debt. I don’t recommend that clients start investing in the international arena and try to find stocks. The Oppenheimer International Bond Fund has done extremely well. The AllianceBernstein Emerging Market Debt Fund has done extremely well. I think those companies, because they are large fund families, have always had a presence in international markets.
Perry-Mason: [Investors should look at] healthcare and baby boomers. I think eyes, hips, and knees are where it’s going. Think about it. We’re getting knee replacements, hip replacements, and eye surgeries. And most of us wear glasses. I also think everyone needs international exposure.
Hinson: Technology. U.S. corporations have about $2 trillion of cash sitting on their books. When they have that much cash, typically what they will do is either [look for] acquisitions and/or upgrade their technology base to become more competitive in a global economy. So we will see technology companies do well there, notwithstanding the notion that there are still a lot of industries where technology hasn’t completely permeated the bottom line.
It’s not clear that demand is going to shrink [for oil infrastructure companies]. The refineries are 20 years old. All of this equipment has to be replaced, and oil infrastructure companies will benefit from the new equipment that has to be purchased to support demand for oil.
BE: How should our readers execute their investment strategy in today’s environment?
Bryant: You start at the end with how you want to live at the end of your life. What percent of today’s salary could you get by on? When you think about that and you get to the end number, you can work backward to find out what kind of portfolio [you
need] and how [assets] have to behave and interact to generate the lump sum that will sustain your existence at retirement. So starting at the end is where I think most of the readers should begin. It’s like a retirement worksheet.Williams: Based on preserving wealth, I say clients need to start with a plan regardless of where they are, regardless of whether they are high or low income. Start with a plan. Where do my investments fit in? Where does my insurance fit in? Where does my asset retention fit in? It all comes together.
It’s like building a home. Your investment may be the brick. Your insurance is probably the foundation, the flooring. Your asset protection or wealth preservation or wealth transference may be the roof of the house. You’ve got to start with a plan to figure out what needs to be done from an investment standpoint, what you need to do to meet your goals, what needs to be done to protect your family in case something does happen and you are not here to finish it out. [You] have to do a blueprint before you start building a house.
JAN WILLIAMS AXA Advisors
| Fund (Ticker) | Price at Recommendation* | 5-Yr. Average Return |
| $12.52 | 9.75% | |
| AllianceBernstein International Growth (AWPAX) | 16.88 | 10.52 |
| Oppenheimer International Bond (OIBAX) | 5.88 | 13.68 |
“The average investor with a moderate-plus risk tolerance should consider a portfolio that’s comprised of 30% bonds and 70% equities. The bond holding could be split in thirds from conservative to international. On the international side of the house, the Oppenheimer International Bond fund has done extremely well. The equity investments should be spread across several asset classes: large-cap growth (10%), larger-cap value (10%), mid-cap (8%), small-cap (8%), international (20%), and 5% into a specialty fund in the healthcare, tech, or energy sectors. The funds I like [include] AllianceBernstein International Growth.”
*As Of Jan. 20, 2006
Source: Yahoo! Finance, Morningstar.Com, Jan Williams
Investment Roundtable
 GAIL PERRY-MASON Oppenheimer & Co.
| Stock (Exchange: Ticker) | Price at Recommendation* | 12-month Price Target |
| Comerica Inc. (NYSE: CMA) | $55.00 | $72.00 |
| Coach Inc. (NYSE: COH) | 36.13 | 42.00 |
| Murphy Oil Corp. (NYSE: MUR) | 53.45 | 55.00 |
“I always say if it’s not broken, don’t fix it. These [stocks] have done well for my clients. I chose Comerica because of the dividend [and] you still get a good, conservative rate of return. Also, they have been talking about a takeover target. You’re looking at at least a 10% return. Coach has been my flagship product. [I recommend] Murphy Oil because of the earnings in oil and because of the international drilling [in] Malaysia, Indonesia, and the Gulf of Mexico.”
*As Of Jan. 20, 2006
Source: Yahoo Finance!, Gail Perry-Mason
DAVID HINSON Wealth Management Network
| Fund (Ticker) | Price at Recommendation* | 5-Yr. Average Return |
| Excelsior Value & Restructuring (UMBIX) | $48.20 | 7.17% |
| Harbor International Instl. (HAINX) | 52.84 | 10.54 |
| Keeley Small Cap Value (KSCVX) | 47.35 | 17.47 |
“All [the funds] that I have picked have one-, three-, five- and 10-year positive returns versus their index, no loads. [All have] long-term managers in place and relatively low minimum initial investments. In the international sector, Harbor International always does a great job. If you [look at] the research, that will make it easy for you to see why I picked them.”
*As Of Jan. 20, 2006
Source: Yahoo! Finance, David Hinson
 DALE BRYANT The Bryant Group
| Fund (Ticker) | Price at Recommendation* | 5-Yr. Average Return |
| iShare MSCI E.M.I.F. (EEM) | $96.86 | NA** |
| iShare S&P Small Cap 600 Value Index (IJS) | 68.50 | 11.84% |
| iShare Cohen & Steers Realty Majors (ICF) | 78.31 | 21.56 |
“I would do a 90%—10% equity/fixed income split. For the 90% equity allocation, I would split it up as follows: 40% in large-cap growth because of where we are and the potential interest rate cycle, 20% in international small-cap, 20% in emerging markets, and 10% real estate investment trusts [through exchange-traded funds, or ETFs].” (ETFs are share-based investment vehicles that seek to imitate stock or bond indices.)
*As Of Jan. 20, 2006
**Fund Is Less Than 5 Years Old
Source: Yahoo! Finance; Morningstar.Com, Dale Bryant
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UPDATE OF LAST YEAR’S PICKS
LARRY JONES NCM Capital Management
| Stock (Exchange: Ticker) | Recent Price* | Price at Recommendation** | Total Return | Current Value of $1,000 Investment |
| Franklin Resources Inc. (NYSE: BEN) | $95.20 | $64.99 | 46.48% | $1,464.84 |
| Schering-Plough Corp. (NYSE: SGP) | 18.56 | 19.93 | -6.87 | $931.26 |
| Walt Disney Co. (NYSE: DIS) | 26.90 | 28.15 | -4.44 | $955.60 |
| Portfolio Performance: 11.72% | Â | Â | Â | Â |
| Current Value of a $3,000 Investment: $3,351.70 | ||||
THEODORE PARRISH G.W. Henssler & Associates Ltd.
| Stock (Exchange: Ticker) | Recent Price* | Price at Recommendation** | Total Return | Current Value of $1,000 Investment |
| Pfizer Inc. (NYSE: PFE) | $25.99 | $24.30 | 6.95% | $1,069.55 |
| Affiliated Computer Services (NYSE: ACS) | 62.35 | 52.05 | 19.79 | 1,197.89 |
| Walt Disney (NYSE: DIS) | 26.90 | 28.15 | -4.44 | 955.60 |
| Portfolio Performance: 7.43% | Â | Â | Â | Â |
| Current Value of a $3,000 Investment: $3,223.03 | ||||
BRIAN JEFFRIES Ambassador Capital Management
| Fund (Ticker) | Recent Price* | Price at Recommendation** | Total Return | Current Value of $1,000 Investment |
| Munder Intermediate Bond A (MUMAX) | $9.20 | $9.53 | -3.46% | $965.37 |
| Munder Tax-Free Short Inter. Bond A (MUTAX) | 10.12 | 10.40 | -2 .69 |
973.08 |
| Dreyfuss Intermediate Municipal Bond (DITEX) | 13.31 | 13.56 | -1.84 | 981.56 |
| Portfolio Performance: -2.67% | Â | Â | Â | Â |
| Current Value of a $3,000 Investment: $2,920.01 | ||||
MICHAEL RAY Legg Mason Funds Management
| Stock (Exchange: Ticker) | Recent Price* | Price at Recommendation** | Total Return | Current Value of $1,000 Investment |
| Citigroup (NYSE: C) | $45.37 | $47.51 | -4.5 | $954.96 |
| General Electric (NYSE: GE) | 32.46 | 35.13 | -7.6 | 924.00 |
| Nextel Comm. (Nasdaq: NXTL) *** | 30.03 | 28.59 | 5.04 | 1,050.37 |
| Portfolio Performance: -2.36% | Â | Â | Â | Â |
| Current Value of a $3,000 Investment: $2,929.33 | ||||
*AS OF JAN 20, 2006
**AS OF JAN 21, 2005
***SPRINT MERGED WITH NEXTEL ON AUG. 15, 2005
SOURCE: YAHOO! FINANCE