Investment Management

Having realistic expectations as to what your portfolio can do in terms of growth is essential in order to have any success. Many times clients will say “the market is up 15% this year, how come I am not up that much?” The market as defined as the S&P 500 is a group of 500 stocks. The S&P 500 Index has no cash and no bonds. It is purely stocks. Most client accounts have a mixture of stocks, bonds, and cash. This mixture is designed to give you diversification and help you preserve your assets against a down market. Quite simply, it is not reasonable to capture all of the gains in the stock market, but not feel any of the downs.

I realize that one of the benefits of working with a financial advisor is that you can offload the work to someone else in managing your portfolio while you enjoy your life and work on the things that are your strengths. But, I feel it is crucial that you have a general working knowledge as to how you invest, what you own, and why you own it. Far too many times I come across new clients who don’t know anything about what they’ve previously bought.

My motto in general is: If you can’t explain it, you shouldn’t own it. Investing does not have to be complicated to be successful.

As the general trend of the stock market has tended to move upward over long periods of time, I tell clients repeatedly that we need to avoid big mistakes and as long as we maintain our exposure to the stock market in general the upside will take care of itself.

What does this mean?

When people hear “stocks for the long haul” or “the stock market moves up over the long haul” they may take that to mean that they should buy a bunch of stocks and hold on. While true to a point, it matters which stocks you own and how diversified you are. Simply put: If you hold the ‘wrong’ stocks your experience in the stock market can be very different from someone else’s. By taking big bets on the wrong sectors or stocks you could miss out on time you cannot get back as well as the general move of the market. While this sounds simple, it can be hard to put into practice. For example, if you hold 35% of your portfolio in your favorite stock and that stock disappoints badly it doesn’t really matter what the rest of your portfolio is doing.

Bottom line: much damage can come from being concentrated in one stock.

While financial advisors can’t predict the future we can build a portfolio that is designed to bring you towards your goals. Successful investors know their temperament and they know what keeps them up at night. It’s the job of the financial advisor to educate their clients, to explain how markets work and how their investments will work together. We have to build a portfolio that will enable you to stay in the game and not make the wrong move at the wrong time. I can show you how your portfolio can endure during times of stress – because economic downturns and bear markets are part of the deal.^*

Rebalancing means that at some pre-determined date, usually yearly, we review your portfolio to see how we’re doing in relation to our stated allocation goal. For example, if we decide that your allocation towards the stock market is supposed to be 60% and we find that after a year you are at 65%, we would sell down some of your exposure to get you back to 60%. The same will hold true if you are down to 55% after a year, I would recommend increasing your exposure back up to the stated goal of 60%. This serves as a strict discipline to force us to sell in an up market and buy in a down market.