Q: Do you only invest in stocks?
A: Yes, of the various categories of investments, Stocks are the best category right now. The other categories have differing advantages and disadvantages.

Q: Why don't you like to invest in Bonds?
A: Bonds are very dangerous now. They have very small yields, and interest rates are at all time lows. Rates will not remain low in the face of oncoming inflation and bond owners will lose money. In short, the rewards are small and the risk is great.

Q: Aren't stocks risky?
A: We focus on the less-risky part of the stock market. There is actually two stock markets, because there are different psychographics of the traders. There is the thirty-something trader who is looking for a high-tech stock to make a new announcement and wanting his stock to triple in three weeks. Then there are old-fashioned investors like me who think a utility stock that pays a 4% dividend and increases 5% a year is a good thing. The thirty-something trader will never buy a utility stock and dividends are hardly a concern for those who will only hold the stock for a few weeks. The news media lumps it all together, but there are really two different markets.

Q: Are you predicting an increase in inflation?
A: The Federal Reserve Bank System has been publishing money supply data that is alarming. For example, in 2010 the money supply has increased 350% in one year. We see prices going up all the time. One needs to have investments that will stay ahead of inflation.

Q: What kind of stock investing do you do?
A: There are three portfolios that I manage. The first is a portfolio of 40-50 utility stocks. The idea here is to have an investment that replaces bonds. Then I select the best 100 stocks which are not utilities and divide them into two groups, 50 of the lowest risk and and 50 next lowest risk. I call these portfolios the low-beta portfolio and the medium-beta portfolio. The low-beta portfolio has a beta of 0.50 which means it has 50% of risk of the stock market and the medium-beta portfolio has a beta of 0.70 which means it has 70% of the risk of the stock market.

Q: What is your fee for managing a portfolio?
A: 85 basis points per year. This is 85/100 of 1% per year, calculated monthly. For example on a $100,000 account, the fee would be $850 per year or $70.83 debited from your account each month.

Q: Does the fee go up when I deposit more money?
A: The fee is calculated automatically based on the balance on each month. So as your account increases, the fee proportionally increases. So if we do a good job increasing your portfolio value, the we are rewarded proportionally.

Q: Do you have a minimum account size?
A: It is $60,000 for a regular account. IRAs can be as little as $5,000, but only if the client is committed to saving over time.

Q: Can I use this account for saving for a house?
A: If your investment timeframe is less than 10 years we cannot buy stocks for your account. Ideally your investment timeframe should be 20 years or longer. It is very disruptive for us to invest money and take it out again. We will look at other investments such as EFTs for shorter timeframes.

Q: Does that mean I cannot take money out?
A: Yes, you can always take money out. We understand that life has emergencies. We can usually get a check to you in a week or so, less time for automatic transfers.

Q: How do you charge for financial planning?
A: Financial planning comes with investment management as a free service within certain limits. The big idea is that if we have a relationship, then I am always available to help when possible. I like to help people. I understand that life is unpredictable and things happen.

Q: What software do you use for financial planning?
A: Mr. Alotta was trained as a systems engineer and has developed his own program for financial planning over the years. The program is written in the ruby language and is called EasyPlan 4.0™

Q: Suppose I have an account of $5,000 and I need 40 hours of financial planning?
A: Then we will be considering the work as an hourly project. But we will talk about this and come to an agreement beforehand.

Q: Do most of your clients pay financial planning fees?
A: Most clients have large accounts that generate more than enough fees, so that I can work as much as needed without a conversation about hourly fees. Hourly fees apply only for a few people. I want to serve everyone who needs help and this gives me a way to help everyone.

Q: What kind of consulting services do you provide?
A: Mr. Alotta offers a broad range of consulting on various topics including:

• Investments
• Business Opportunities
• Entrepreneurship
• Financial Management
• Business Startup
• Personal Finances
• Collectibles
• Divorce and Family Matters
• Systems and Computing
• Identity Theft and Privacy


All consulting information is handled very privately.
Consulting fee is $200 per hour.

Q: Tell us more about your preference for stocks versus other kinds of assets?
A: Many Americans believe “cash investments are the best way to invest money not needed for more than 10 years,” according to a new survey by Bankrate.com. More than one in four Americans (26%) favor cash as the best long-term investment, choosing it over real estate (23%), gold or other precious metals (16%), stocks (14%) and bonds (8%).

There was an income component differentiating the results. Those earning six-figure salaries preferred stocks (34%) and real estate (32%), while those earning less preferred cash (29%), real estate (23%) and metals (18%). There was also a bit of a gender gap, with women having a greater preference for cash (30% versus 21%) and men having a greater preference for stocks (18% versus 11%).

What’s more notable about the results is the number of respondents in every demographic category who chose an asset other than stocks for long-term investing. Clearly, there is risk aversion at play. This is not surprising given the two bear markets that have occurred over the past 13 years and the still-lingering effects of the last recession.

There is also, however, a lack of understanding about inflation and the historical returns of stocks. Over the long term, inflation significantly reduces purchasing power. (Purchasing power is your ability to buy goods and services for a certain amount of cash, such as a dollar.) Even at the current low levels—the most recent Consumer Price Index data calculated the 12-month inflation rate as being 1.8%—investors are guaranteed to lose out by holding cash over the long term.

For example, let’s assume a scenario where interest rates and inflation stay unchanged from current levels for the next 10 years. (Yes, I know the odds of this happening are extremely low.) You save $10,000 now in a cash-equivalent vehicle at an annualized yield of 0.67%, which Bankrate.com says is the current national average for one-year CDs. Ten years from now you incur an expense in an amount equivalent to $10,000 in today’s dollars. By solely investing in cash, you will face a $1,260 shortfall in savings. (At a 1.8% inflation rate, the cost of the expense will grow to $11,950, while your savings will only increase to $10,690.) If inflation accelerates, the risk of an even bigger shortfall increases as well.

This is not to say stocks are riskless. During a 10-year period, they can fall in value, as large-cap stocks did from 1999 through 2008. The long-term data, however, suggests the odds favor investing in stocks. Since 1926, large-cap stocks have realized positive returns 74 out of 78 10-year periods. Small-cap stocks have fared even better, realizing positive returns during 76 out of 78 10-year periods, according to calculations published in the 2013 Ibbotson SBBI Classic Yearbook.

Treasury bills, which are considered to be a cash-equivalent investment, have fared better on an absolute basis. They realized positive returns during all 78 10-year periods calculated by Ibbotson. On a relative basis, however, the performance wanes greatly. Only once did Treasury bills realize a higher 10-year return than large-cap stocks, small-cap stocks, intermediate-term government bonds, long-term government bonds or long-term corporate bonds. The period was 1965 through 1974, and Treasury bills barely outpaced inflation (5.43% versus 5.20%) during it.

In contrast, large-cap stocks and small-cap stocks realized the highest returns out of the group 20 times and 45 times, respectively. Though gold and real estate were excluded from the calculations, I don’t think their inclusion would have changed the results much since stocks have historically outperformed both of them over long periods of time.

None of this is to say you shouldn’t hold any cash. A certain amount of savings is needed for emergencies, planned upcoming expenses, retirement withdrawals and anticipated near-term portfolio adjustments. However, for money not needed for at least 10 years, cash is costly, both in terms of the loss of purchasing power and in terms of the loss of wealth you could realize by maintaing a significant allocation to stocks as part of a diversified portfolio.