EXPERTS: Most Investors Need an "Asset Allocation Tune-up"
Heading Out of 2002 and Into 2003  Listen Now 

WASHINGTON, D.C.//December 18, 2002//Four leading fee-only investment advisors from across the United States warned today that many U.S. investors are heading for even more financial difficulties in 2003 if they do not take the time now to for an "asset allocation tune-up." The financial experts outlined the five biggest asset-allocation mistakes investors are making today, including not rebalancing portfolios due to the "fear factor," failing to implement simple investment strategies to maximize tax efficiency, and operating with a blind faith in active management. The group also identified the three biggest "red flags" that an investor has major asset-allocation strategy problems.

The group of investment advisors, who are members of the Zero Alpha Group (ZAG), are: Savant Capital Principal Brent Brodeski (Rockford, IL); Plancorp President Jeff Buckner (Chesterfield, MO); Resource Consulting Principal John Prizer (Orlando, FL); and Petersen Hastings Vice President Scott Sarber (Kennewick, WA). Members of the nationwide network of seven fee-only investment advisory firms manage a total of more than $1.75 billion in assets.

THE FIVE MISTAKES INVESTORS ARE MAKING RIGHT NOW

When it comes to asset allocation, the following are the five most common errors that are being committed today by investors:

1. Not rebalancing portfolios due to the fear factor.
In the face of recent market turbulence, many shell-shocked investors are "scared" to rebalance their portfolios. While it can be frightening to do this, reluctance to rebalance during turbulent markets often makes a bad situation worse.

Plancorp President Jeff Buckner said: "A lot of investors that come to us for the first time tell us they literally get sick to their stomachs every time they see their old account statements. Often these people are like deer in the headlights. It's our job to demonstrate the importance of their facing the reality of their situation. People need to ask the question: Does the reason I bought this investment product still exist?"

2. Failing to implement simple investment strategies to reduce taxes.
With the difficult multi-year bear market, many people have significant unrealized capital losses in taxable accounts. Too often, people are reluctant to sell such stocks and investments in loss positions. They fool themselves into believing that they haven't really lost money as long as they don't sell. This backwards logic often causes people to miss year-end tax loss harvesting opportunities.

Savant Capital Principal Brent Brodeski said: "An investment's true worth is always what it can be sold for today. Accepting this allows investors to aggressively harvest tax losses to offset other current gains. Even if an investor can't use all the losses right away, inventoried losses can be carried forward indefinitely. Thus, tax losses are a sort of consolation prize. While no investor prefers to lose money, at least harvesting such losses allows you to recapture 20 cents or more on the dollar."

3. Blind faith in "active management."
Even after the difficult bear market in recent years, index funds (which own broadly diversified baskets of stocks) are a wise choice because they are much more diversified, lower cost, and serve as superior building blocks for implementing effective asset allocation strategies than actively managed mutual funds that own a smaller number of stocks.

Petersen Hastings Vice President Scott Sarber said: "Active management adds speculative risk, is more expensive and has not been shown to deliver results for investors over time. The sooner an investor understands that, the less likely it is that he or she will be frustrated with results that fall short of what may have been promised."

4. Lack of a long-term strategic asset allocation strategy involving both equities and fixed-income securities.
Many investors don't have an effective strategy for diversifying between fixed income and equities. Many people still have way too much in equities. Others don't have enough equity. The bull market of the late 1990s and the current bear market caused many investors to forget about long-term fundamentals and instead succumb to short-term thinking that is inconsistent with their financial plan.

5. Overly simplistic understanding of what "asset allocation" means.
Many investors may think they are properly allocating their portfolio by following a simple formula, such as "70 percent stocks and 30 percent bonds." However, this simplistic approach does not recognize the complexity of the investment world - including sectors, investment styles, U.S. v. global considerations, and so on - which must be reckoned with comprehensively in a truly comprehensive and broadly diversified approach to asset allocation.

Resource Consulting Principle John Prizer said: "Asset allocation in today's markets does not just mean owning a certain percentage of stocks and certain percentage of bonds. To minimize risk and maximize the potential for returns, you have to take a much more sophisticated view of things than that; very few investors seem to understand that on their own. We see a lot of people making 'token' efforts when it comes to asset allocation and that can be a huge mistake."

WARNING SIGNS THAT YOU NEED AN ASSET ALLOCATION TUNE-UP

The four experts pointed to the following three "red flags" as the clearest danger signs that an investor is operating without any kind of systematic approach to asset allocation:

1. Lack of a core investment philosophy.
"Chasing performance" is not an investment philosophy, which too often means buying at the highest price. Portfolio rebalancing under asset allocation is explicitly designed to promote a rigorous buy-low/sell-high approach to investing.

2. An emotion-driven approach to investing.
An investment "strategy" of shooting from the hip is usually the antithesis of the cool, methodical approach of asset allocation. Reliance upon emotion almost always leads to "big bets" on long-shot companies and other investment products that then fail to deliver. In addition to greed, emotion-driven investment may involve fear and anxiety.

3. Heavy reliance on stock from the company where you work.
Even with the experience of Enron and other companies, a surprisingly large number of investors remain excessively reliant on the prospects of the success of the company for which they work. The worst surprises seem always to come in those cases where a company's employees and executives mistakenly believe that they have a "bead" on the company's performance and prospects. Frequently, these people with the front-row seats are the ones least able to get a truly big-picture sense of what is really going on at the firm.

ABOUT THE FOUR EXPERTS

Petersen Hastings, Kennewick, WA. - Petersen Hastings, an independent investment advisor founded in 1962, manages assets through a strategy of asset allocation and indexing. The firm serves its clients - including retirement plans, trusts, non-profit organizations, foundations and established individuals - using its proprietary Disciplined Wealth SolutioTM and Core Values Investment ProgramTM, which is a solution for socially responsible investing. Petersen Hastings is on the Web at www.petersenhastings.com.

Plancorp, Chesterfield, MO. - Plancorp focuses on the management of wealth for high net worth individuals and has done so since 1983. The firm provides personal and business transition planning, investment management, family office services and business consulting services, using its Personal Transition Process™ and Intelligent Investor SolutionTM. Plancorp is on the Web at www.plancorp.com.

Resource Consulting Group, Orlando, FL. - Resource Consulting Group is a fee-only financial planning and investment advisory firm established in 1988 to provide low cost, asset class investing for their clients, using the firm's Systematic Financial SolutionTM. Resource Consulting Group's Web site is www.resourceconsulting.com.

Savant Capital Management, Rockford, IL. - Savant Capital Management was founded in 1986 as an independent, fee-only financial advisory firm. Savant provides financial planning and investment advisory services to financially established individuals, trust funds, retirement plans, non-profit organizations and fiduciaries, using the firm's proprietary Wise Wealth IntegratorTM and Wise Wealth Investment SolutionTM processes. Savant Capital Management is found on the Web at www.savantcapital.com.

ABOUT THE ZERO ALPHA GROUP