Q&A: Finances, the economy and your money | AspenTimes.com

Q&A: Finances, the economy and your money

Donna Di Ianni

Donna Di Ianni is first vice president of investments, senior financial advisor, of the Merrill Lynch Global Private Client Group. She has been with Merrill Lynch for over 25 years and established its Aspen office in 1999. Di Ianni and her team provide customized solutions for their clients by developing a personalized investment policy encompassing asset management, liability management, estate preservation, and philanthropic planning. She has been named among the top ranked financial advisors in America, as well as the top wealth advisors in Colorado.Inside Business, a feature of The Aspen Times on Tuesdays, posed some questions to Di Ianni to get her take on todays economy.IB: In your experience, is this the worst economic climate youve seen?DD: This is clearly the most difficult economic environment in a generation so most families have not experienced this kind of a downturn. What began with the fallout in the housing market has now permeated most segments of the economy. We are seeing rising unemployment and low consumer confidence which creates a lot of angst in families whether they are impacted or not.This is particularly true for baby boomers whose investment experience began somewhere after 1982, which started the longest bull market in history marked by relatively low levels of volatility until recently.IB: What are you advising your clients as the best investments today?DD: We are helping our clients to reevaluate their risk tolerance and, in some cases, reallocate their portfolios. If they cannot tolerate the increased volatility in their stock portfolios, they should reduce their exposure. On the other hand, if we have done our job right and have put in place proper planning with a well-thought out asset allocation strategy, and if they have a longer time horizon, we are encouraging them to stay on the train. Each client has their own unique set of financial objectives, specific time horizons to meet those objectives and tolerance for risk. The right strategy for one client may likely be different for another.IB: What industries are a wise investment? Gold, stocks, real estate?DD: We believe there will be continued volatility in the equity markets in 2009. So it truly depends on an investors short and long term goals. If they are positioning portfolios for the current recessionary environment, we prefer defensive, cash-flow stable sectors such as consumer staples. In tough times people will still buy food, medicine and necessities, and tend to forgo the things they really dont need. We also see an opportunity in high quality municipal bonds and high quality corporate bonds.IB: What is your read on Aspens economic state?DD: Aspens economy is incredibly resilient and we have weathered many challenging environments. Having said that, Aspen is not immune from economic downturns. I would expect retail sales of luxury goods to be down as consumers retrench. Your newspaper reported recently that skier visits were off slightly over the Christmas holiday but about even the week after. Visitors may wait until the last minute to book vacations. Of course, record snowfall helps a lot. Think snow!IB: You work with local nonprofits. How are they adjusting to the downturn in your experience?DD: These are very tough times for nonprofits. Those who have a compelling mission, sound financial underpinnings, and an institutionalized donor base are best positioned to ride out the downturn.IB: What are the fears and concerns you are hearing from your clients? How are you quelling those fears?DD: We are committed to helping our clients navigate this period of uncertainty. We are advising our clients to continue having a plan while remaining disciplined and avoiding reacting emotionally to the current volatility. The barrage of negative news seems endless. We need to act rationally and not let fear or emotions drive investment decisions. IB: What are your thoughts on wealth transfer planning in these difficult financial times?DD: As it relates to wealth transfer planning, low asset values and low Applicable Federal Rates (AFRs) create an excellent opportunity to transfer wealth outright or through the use of various trust instruments.IB: When do you predict well get out of this recession, both nationally and locally?DD: Ill leave the predictions to the economists.IB: How do you recommend people preserve their wealth, should they put it under the mattress?DD: It all goes back to time frame. If an investor needs funds in the short term, they should be concerned about principal risk and they should be invested in short-term cash instruments. Another risk to wealth is inflation risk. If they put their funds under the mattress for 20 years, they will wake up and find out that, with inflation, the buying power of their funds is substantially diminished. Assets need to be managed for both principal risk and inflation risk.IB: Whats your recommendation for those with high debt ratios? How should they deal with it and whats the most important piece to pay down first?DD: Managing liabilities is as important as managing assets. A good plan considers not only what you own but what you owe. I would recommend paying down high interest credit card and consumer debt first.IB: What is an everyday way to save money? Besides not buying lattes.DD: I would recommend maxing out the 401K, IRA or Roth retirement plan contributions. IB: Should Bernie Madoff go to jail?DD: We need to let the investigation and judicial system take its course. Certainly, investors have the right to expect that their money is being handled wisely, safely and in complete compliance with the law.IB: Why should people invest in a financial advisor these days? DD: Investing with a financial advisor is a personal decision. As financial advisors, we build essential partnerships with our clients and their other advisors. We provide objective, customized solutions that meet the individual goals of the client. In troubling times like these, our clients rely on us even more to help maintain their focus on having a plan, being disciplined, and avoiding reacting emotionally.IB: Do you advise young people? If so, how do you advise them about their futures?We are a multigenerational team and we manage wealth for multigenerational families. The No. 1 concern parents have is that their children who inherit the wealth someday dont have context to be able to manage and sustain the wealth they created. Our responsibility to younger family members is to provide historical perspective on the markets as they simply dont have the personal experience, and specifically to really teach them to have rational capital markets expectations. For example, its common knowledge that the stock market has produced about a 10 percent return on average in the past 80 years. So the expectation is that the stock market will produce a 10 percent return per year. The reality is that the stock market rarely returns 10 percent it may be plus 30 percent or minus 30 percent. If your expectations are rational and realistic you will be anticipating the possibility of a 30 percent downturn. If you anticipate the possibility, it will be easier to make the right choices when the time comes and the decisions will be objective, not emotional. A lot of decisions about the market are emotional, which causes investors to often buy high and sell low. In summary, our advice to young people and seasoned investors alike is:Have rational expectations of the capital markets.Define objectives ad time horizons to meet the objectives.Assess your ability to tolerate risk/volatile markets.Create an asset allocation and stick with it in good times and bad.

Di Ianni can be reached at donna_m_diianni@ml.com.

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