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SEC and FINRA Issue Investor Alert RE: Year-End Investment Considerations

Late last week, FINRA and the SEC's Office of Investor Education and Advocacy issued an investor alert encouraging investors to take stock of their investments and finances at year-end. This alert is rather brief, but offers sound advice to prevent disputes that could lead to the kind of arbitration or litigation we see every day.

In particular, the two regulatory bodies suggest reviewing asset allocations and consider rebalancing. Conventional wisdom tells us that investing in more than one asset class generally decreases the risk of a portfolio's returns and leads to greater holding period returns on average. Moreover, since assets held in a portfolio vary in value over time, it is possible that a buy-and-hold investors portfolio could become over (or under)-weighted in a particular asset class or market sector. It is important that investors take stock of their portfolio and realize any potential problems with current allocations. FINRA also points out that investors can -- and should! -- check the background of their broker or investment adviser.

The investor alert also stresses the importance of tax considerations at this time of year. If an investor believes that tax rates on capital gains may rise in the next year or so, it could be prudent to realize capital gains before the end of the year and take advantage of 2012 capital gains tax rates. A similar issue has been the focus of media scrutiny lately, as many corporations have increased dividends in anticipation of higher tax rates resulting from the Fiscal Cliff debate.

It is also important to update financial records and ensure that these documents are in a location easily accessible in case of an emergency. Based on our litigation and arbitration experience, we certainly agree that investors who have well-maintained records and copies of all pertinent agreements between themselves and their brokers or advisers are much better prepared if those investments turn sour.