Our goal is to help you reach your financial and life goals, through good investing and excellent advice.
But how can you do this consistently and with confidence?
How can you and your investment advisor have an approach that is rational and logical, which is not based on predictions and forecasts of what may happen in the future?
Through our disciplined investment approach, we can do this. And it will make you feel more comfortable and confident about stock investing and your financial future.
With individual stocks, it may seem impossible to consistently be able to buy low and sell high. It is challenging to try to guess or predict when a stock is low (and you should buy it) and how to decide when to sell (and know it is at a high). This is not a game we recommend to play.
We recommend investing in very low cost asset class mutual funds, which each hold large groups of stocks, in categories such as US Large, International Value, US Small Value, real estate investment trusts (REITs) or Emerging Markets.
When we develop a portfolio for a client, we first set an overall allocation of stocks and bonds/fixed income. Then we determine the allocation targets for each asset class, based on your needs and goals. For example, US Large may be 20% and REITs may be 5% of your stock allocation.
As the markets change, we make our buying and selling decisions based on a rational approach called “rebalancing,” not based on guessing.
We first review the overall allocation, to see if the stock and fixed income mix of your portfolio has changed. If stocks have done well, we would sell stocks “high” and use those proceeds to buy more fixed income. This keeps your exposure to stocks around a pre-determined percentage, to avoid excess risk in your portfolio.
In the late 1990s, most investors did not sell as their gains mounted. They let their stock gains continue to grow until they crashed and disappeared. Our rational approach allows you to sell high and prevents taking on more stock exposure than you intended.
If US Large has done well and that allocation has grown from 20% to 25% of the allocation, we consider “selling high” (after reviewing the tax ramifications) and reinvesting in an under-performing asset class. This is truly the discipline of buying low and selling high.
How does this work in the real world, for our clients?
Last year, Emerging Markets underperformed most other asset classes. If a client added money late in 2015 or early 2016, we would have over-weighted the purchase of the Emerging Markets asset class, if that asset class was appropriate for them.
As of this week, Emerging Market stocks are far outperforming all other asset classes for 2016, except the real estate asset class, with returns of approximately 15% year to date. This is about double the return of the S & P 500 for 2016. This is the benefit of being disciplined and rebalancing on an ongoing basis.
Having a disciplined approach to deciding when to buy and sell is a key component of our investment philosophy. It enables our clients to buy low and sell high. It enables our clients to understand us and provides them with a greater level of comfort.
Wouldn’t you be more comfortable and confident with our approach, versus you and/or your broker constantly guessing when is the right time to buy or sell Apple or Facebook?
We think buying low, selling high, being rational, confident and comfortable are all in your best interest.