Traveling and Investing Successfully

To be successful at both investing and travel, you should….
  • Be open minded and adaptable
  • Be willing to try new things
  • Plan
  • Be patient
  • Seek out the advice of experts.

If you want to go on a two week trip to a foreign country, most people would develop a plan before they leave. You would likely consult an experienced travel agent, even in today’s internet age, if you are going somewhere you are not familiar with. Working with a travel agent, you would set an itinerary, pick the cities you want to visit and possibly things you may do during the trip.

In planning for your investment future, this longer journey requires goal setting, discipline and should include using a skilled navigator to advise you and your family, as advice will frequently be needed. If investing is not your area of expertise, a trusted advisor will help you handle volatility and constantly changing markets.

While traveling, you may incur challenges that require adjustments. You may be hit with bad weather. You may have flight problems. Have you planned for these kinds of contingencies? How well do you handle change?

In investing, we know that the unexpected should be expected, but most investors don’t plan for this. Our philosophy and investment strategy alleviates a lot of these types of issues, as we recommend broadly diversified portfolios and discuss your tolerance for risk in advance.

In the last week, two events occurred which significantly affected certain investors.  The unexpected did occur.

Some investors who desire high current income from their portfolio (they focus on yield) invest in energy master limited partnerships (MLPs). Last week, many of these MLPs lost 10% because of a federal regulatory decision which will significantly reduce their cash flow. This was not expected and the underlying investments not only incurred large losses in value, but their future income distributions may be cut. These investors have been hit with a double whammy, as they lost principal and their income may be reduced.

Facebook lost approximately 10% of its value in the past week due to the disclosure that certain data was released to other companies.  While Facebook has been an outstanding stock and is held within the large company mutual fund which we recommend, a decline like this shows the risk of owning just a few stocks, rather than many.

Some people purchase vacation homes or are attracted to buying a time share after only a few visits to an area. Years after buying the time share or 2nd residence, the initial luster may wear off. You may tire of visiting the same place every year. The beach that once seemed exciting becomes routine. The restaurants don’t change. You miss the variety of seeing new things and having new experiences. While the logic of acquiring the vacation home may have made sense initially, after many years, it may no longer be optimal for you. But now you are stuck with real estate that may not be so easy to sell. In this case, change may be hard.

We see a similar pattern with many others we meet with (non-clients) who have held what we refer to as “legacy stocks” for decades. These are stocks which may have performed well for many years, but have significantly underperformed broad stock market averages for numerous years. Some of these stocks have not grown or even declined over the past 5-10 years, while the broad US and global stock markets have increased dramatically. They may no longer be optimal investments. Examples of these would be companies like GE, Proctor & Gamble, General Mills, IBM, many retailers and others in industries which have faced stiff new competition or have not adapted to change in the economy. Companies like Ford, Coca-Cola, Pfizer and Merck have either hardly increased in value over the past 5 years or have increased, but far less than broad market averages.

This is where adaptability and being open minded is vital. Are you willing to consider new or different investment approaches? To our valued clients, we appreciate that you were willing to consider our investment strategy, which at one time was new to you.

For those who hold these types of legacy stocks, or focus mainly on the dividend or yield of their investments, we encourage you to be open minded to other investment strategies. You may have unrealized capital gains and don’t want to incur capital gains taxes. You may like the dividends you receive, but they may decline in the future, as has occurred with GE. As we will discuss in a future blog post, focusing on your capital and the total return of your investments is much more important than your annual dividend income.

As your travel plans may have to change mid-trip and you may need to adapt for the duration of the trip, it is important to be open to reviewing your investment strategy. You should be willing to review if the companies you own have adapted and will be optimal as the economy is always evolving and changing. What may have been a solid strategy 10 or 20 years ago may not be the optimal strategy for the future. Our globally diversified investment strategy is structured so that you can benefit from changes in the economy, without subjecting your portfolio to unnecessary risk.

 

 

 

 

 

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