Investing for Long Run

Blog post #461

We invest for the long run. For long-term financial goals like college and your retirement.

Think of your investment horizon as nearing and then crossing a bridge, such as the Mackinaw Bridge or Golden Gate Bridge.

The investment horizon while you are saving is the period while you drive towards the bridge.

When your kids enter college or you near/begin retirement are comparable to after you have crossed the bridge.

These are serious financial goals and we make our investment recommendations accordingly. We don’t take unnecessary risks. We diversify. We recommend building a globally diversified portfolio that contains thousands of stocks, across industry sectors and geographic regions. We invest in large and small companies, in the US and across the globe.

As we build your portfolio, if you consider it like driving over the bridge, we think it is better to drive in the middle (having a broadly diversified portfolio) than riding the edges of the bridge with no guardrails (owning few stocks or very risky stocks concentrated in one sector or region).*

 

Why do we structure our portfolios in this diversified manner? Wouldn’t it be better to just load up on high tech stocks? Because the less diversified you are, the closer you may get to the edge of the bridge. Sometimes, this can mean higher returns, but it also may mean greater losses. Owning huge positions in individual stocks can lead to large losses which are unnecessary and hard to recover from.

With a globally diversified portfolio, you will have fewer reasons to worry about poor returns from a single stock or asset class. This does not mean that we recommend 50% or more outside of the US. We generally recommend holding 20-30% of your stocks outside of the US, depending on your personal circumstances. Because there have been many time periods in the past when non-US (International stocks) outperform US stocks for long periods of time, we feel this is prudent in the long-term. And that will keep you in the center of your financial road.

As you approach a bridge, there is frequently a backup. You are stuck in traffic. You may want to change lanes to get in the best toll booth lane. But once you switch lanes, your new lane becomes the slow lane. If you keep changing lanes, you will usually get more and more frustrated.

Investors do similar things. They can be impatient. They may want to get out of the stock market when the road gets scary. They may want to eliminate certain sectors of the stock market from their portfolio (such as small value and International stocks) because they are underperforming other asset classes, even though long-term historical data shows that they outperform or add important diversification benefits over long periods of time.

While we do not have a clear roadmap of the future, we feel that being disciplined and relying on historical financial evidence is better than guessing and continuously changing lanes.

We provide you with objective, rational advice. We do not give in to panic or make hasty, emotional decisions.

For most of us, whether crossing a bridge or investing, we want to follow a safer and prudent path. Your future is too important to risk.

Talk to us. We want to listen. We want to assist you, your family members and friends.

 

Source:  *27 Principles Every Investor Should Know, by Steven J. Atkinson (Illustrations by Dan Roam) July 2019

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *