Looking back and forward, Part 2

Blog post #423

As this decade draws to a close in a few weeks, we are providing a series of blog posts of our thoughts and reflections, lessons and guidance.

Last week we discussed how interest rates changed dramatically over the past decade, and in the opposite direction of what most people would have expected to occur in 2010, for the next 10 years.

This week, we will provide some of the traits, philosophies and attitudes that can help you to be more successful, as an investor and for your financial future.

Having a written investment plan. We feel that developing a written document with our clients, that discusses their long term asset allocation plan, as well as the potential of how such an allocation could perform during a significant market decline, is vital to your future success, as it helps you adhere to the plan during down markets.

To be a successful investor, you need to be patient. You need to have the psychological ability, with our assistance if needed, to ride out market declines, to be able to reap the rewards of positive bounce backs. Staying in the market during and after the significant declines of late 2018, and at other times in the past decade, are great examples of this. By staying in the markets in late 2018, this enabled the stock portion of your portfolio to grow during the positive markets of 2019.

Be willing to listen to others and get advice. Due to changes in financial markets, the economy, tax laws and the speed of change in general, we feel that using a financial advisor can help you reach your financial goals. Using an advisor that adheres to a fiduciary standard, as our firm does, so that the advisor’s interest is aligned with your financial interests is important. One aspect of an advisor that adheres to a fiduciary standard is we try to keep your costs minimal, by using very low cost institutional mutual funds. We cannot control many things, but costs are something we and you can control.

Having a consistent investment philosophy that you believe in and can adhere to over the long term, is vital. This philosophy should provide you with a solid chance for financial success. Rather than continuously changing approaches and underlying investment managers, sticking with a consistent, long term philosophy should provide you with confidence and peace of mind. An important aspect of our philosophy is the belief that, for most investors over the long-term, utilizing asset class mutual funds should outperform those who buy and sell individual stocks, as well as active money managers who try to guess which stocks and sectors will do the best in the future.

We believe that for the long term, being broadly and globally diversified is the proper strategy for your stock portfolio. We also believe that having a portfolio tilted towards small and value stocks, as well as including International stocks, should provide you better expected returns and a smoother ride over the long-term.

 

  • We may have the right long-term strategy, but this does not mean this will result in an optimal outcome every year or even for a number of years. You can have a good strategy, and still incur an outcome that is not as good as another strategy over certain time periods. But that does not mean you should change your strategy in a significant manner, unless you have evidence which supports your change, or that your current strategy is no longer valid.
  • To use a sports analogy, if you are going into the Super Bowl and could pick any quarterback, choosing Tom Brady may be the correct strategy. He may not win that one game, but your plan was valid. Over the longer term, he has proven to be a winner. Likewise, in investing, one could develop a sound strategy and recommend investing in a diversified set of asset classes (mutual funds).  If one of those asset class mutual funds underperforms other asset categories for a period of time, this does not mean the strategy was bad.  Patience is likely to prove that in the long term, continuing to hold a currently underperforming asset class to be rewarding in the future.  We just don’t know exactly when.

We think having a positive attitude helps you to be a more successful investor. You should believe in capitalism and that over the long-term, companies will succeed and grow their earnings.

Having realistic expectations of the financial markets is vital. You should know that stocks go down at least 20% in one of every 5 years, on average, since World War II. We want you to be prepared emotionally and financially for such downturns. At the same time, know that stocks go up far more years than they go down. When you are in retirement mode, you should plan to withdrawal 4-5% of your portfolio, which gives you a better chance of not running out of money during your lifetime and be able to maintain your standard of living.

We know that the financial markets and the world are continually changing, and we will change and adopt new strategies, investments and concepts, if they are valid, sound and we expect them to be beneficial to our clients. We are independent. We do not get compensated by mutual funds or other investment providers. We gather information from many sources, but we make our own decisions and recommendations.

We have used the same general investment philosophy since our inception in 2003. We still strongly believe in these major concepts and beliefs. Within that framework, however, we have not been static. We have made changes and modifications over time and will continue to do so, as we feel they should be made, as long as we expect them to be in our client’s best interest.

We cannot predict the future. We do not know what the next decade will bring. We do know that we have a set of philosophies and beliefs, as well as a team of professionals and industry relationships, that you can be confident in.

Talk to us.

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