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| Adrian Mastracci, president of KCM Wealth Management, says “This brings me to my premise. Now is an appropriate time to reflect on the appropriateness of the investment roads being taken." |
For Immediate Release
Vancouver, BC (November 29, 2004): Do investors know what their portfolios are up to these days? In the words of Mark Twain, he once said:
“October. This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February.”
Adrian Mastracci, investment counsel at Vancouver’ “fee-only” KCM Wealth Management comments, “Judging by portfolios that I review, Mark Twain was right. Those portfolios could well be speculating with the investors’ money. Perhaps, without their knowledge.”
“This brings me to my premise,” remarks Mastracci, “Now is an appropriate time to reflect on the appropriateness of the investment roads being taken.”
“It seems that most investors have made infrequent changes to their portfolio compositions since the year 2000,” adds Mastracci, “Riding the bear market down was a popular approach.”
“Many investors purchased only a few new investments, or continued to add to their collections of funds,” notes Mastracci, “Some are now simply loaded up with 15 to 20, or more, mutual funds.”
“Sadly, there has also been little evidence of periodic reviews of the selected investments,” says Mastracci, “And that can spell danger for some portfolios.”
“The number of investors with allocations to equities in the range of 75% to 90% is a concern,” mentions Mastracci, “Allocations far too high when compared to the actual investor profiles.”
“Let’s place some perspective on these allocations,” states Mastracci, “A 70% to 85% mix of equities is an aggressive investment profile, while 85% to 100% equities is speculative.”
“It takes quite an appetite for risk to embrace the aggressive or speculative profiles. Something most investors are not comfortable with,” muses Mastracci, “For most, comfort with equities typically ranges from 40% to 60%.”
“The hidden danger is not being aware of what’s going on inside the portfolio,” points out Mastracci, “Notably, for investors who don’t know their personal investment profiles.”
“I have some thoughts to ease the unwanted speculation,” continues Mastracci, “But first, have investors ever asked themselves these three easy questions?”
1. Why do I own the investments that I own?
2. Am I really as aggressive as my asset mix says I am?
3. Do I have a well designed portfolio strategy in place?
“These questions may look simple, but the answers are very powerful. It gets back to what is important to investors about their financial security,” observes Mastracci.
“If their answers provide investors reassurance, there is probably little or no reason to fix something that’s not broken,” muses Mastracci, “However, if investors express doubts or concerns, some changes may be in their best interest.”
Mastracci summarizes some tactics for consideration:
- Pension plan managers are skilled at long-term thinking. They understand that short-term moves are a normal part of the long investment journey. Investors can benefit from this approach.
- Investment organizations, such as pension plans, routinely review their asset mix policies. Perhaps, investors can also review the suitability of their asset mix.
- Pension plans tweak their asset mix policies periodically to seek and maintain the cashflows that pay the long-term pension benefits. Similarly, investors can adopt appropriate asset mix policies to reach and sustain their personal goals, such as the retirement nestegg.
- The asset mix in every portfolio ought to reflect the real investor profile. All within risk parameters that investors can understand and live with.
- The mix of equities, bonds and cash has the biggest impact on portfolio returns. Resisting the many temptations to take on unwanted risks also helps.
- If a touch of aggressive or speculative investing is fitting, limit exposure to such investments. Say by allocating not more than 5% to 20% of total portfolio value to them.
- Above all, ensure that no one investment can tip the ship and create significant portfolio damage.
“Keep it simple and skip the fanciness,” suggests Mastracci, “The tried and true investment strategies still work very well.”
“Today we live in a modest investment expectation world,” suggests Mastracci, “A time during which savvy investors rely on asset mix policies to deliver over the long haul.”
“Investors ought to focus plenty of attention on the appropriate asset mix policies,” concludes Mastracci, “It’s one simple method that keeps the portfolio from speculating with their money.”
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