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Adrian Mastracci, president of KCM Wealth Management, says “Position the serious money portfolios with the markets. Adopt these four smart moves.” |
Vancouver, BC (May 23, 2006): Much thought goes into managing serious money portfolios.
Warren Buffett once said, “Risk comes from not knowing what you're doing.”
Adrian Mastracci, Chief Investment Officer with “fee-only” KCM Wealth Management in Vancouver, comments, “Investors have enjoyed a bull market since March 2003. Without a major correction of 10% or more. However, many gurus think things could change. Any day, any time.”
Hordes of predictions are making the rounds. They run the gambit from slowdowns, substantial pullbacks, sideways steps and even more upsides. All can be heard on the same day.
Reality is that nobody really knows. So, should investors be concerned? Is it time to jump ship? Perhaps, run and hide?
The right answer should be no, unless the nestegg is truly in tatters. A well-designed portfolio ought to ease investment jitters and concerns most times.
Buffett’s wisdom is invaluable. I’ll summarize four smart moves that improve serious money portfolios:
1. Untangle the muddle
First off, I’m a firm believer that many portfolios are loaded up with too many mutual funds. Worse yet, the collections of funds don’t always fit well together.
They just become unwieldy and muddle along. Hardly anyone takes a close look at how the portfolio muddle got out of control. It simply gets added to.
A frequent portfolio theme for investors is typically a slew of 15 to 25 different fund names, sometimes more. Practically all purchased with deferred sales charges that start around 6% during the first year.
Management expense ratios (MERs) for many equity funds range between 2.5% and 3.5% when all fees and expenses are included. Similarly, MERs on many fixed income funds hover around 2%. None of these MERs are deductible as they are paid from within the mutual funds.
Many funds have a significant overlap of securities. The individual holdings within funds owned are often quite similar, providing a false sense of diversification.
Portfolios that look and feel like this are in need of much polish to bring the shine back. Yes, I’m a big fan of simple things that work well.
Take a firm grip of the nestegg and untangle the portfolio muddle. Less than 10 funds should do it.
2. Ease the worries
Investors love to worry. Yes, non-stop, day and night. Oddly enough, even during bull markets.
I also think that investors have developed the “data dependency” affliction. That is, always waiting for another piece of data to hang onto as their next guiding light.
Today’s "wall of worry" bellwethers have that familiar ring. Inflation, oil, interest rates, consumer spending, deficits, jobs…….. Just for starters.
Both bull and bear markets are a natural part of the investment experience. Extra patience comes in handy to weather the unpredictable ups and downs.
So, have complete confidence in the chosen strategies before tackling the investment selections. There will be plenty of temptations for second guesses along the road.
Being informed is smart thinking. Worrying about something that can’t be controlled adds needlessly to investment frustrations.
Maintain perspective. The smart move is to resist worrying about every financial nuance. If it doesn’t feel right, perhaps consider taking a profit or two off the table.
3. Buy quality
To borrow a phrase from a Ford advertising campaign, “quality is job one”. As it happens, serious money portfolios also benefit from a healthy splash of quality.
I favour sticking with quality investments, especially for the core selections. Make sure the portfolio foundations are fortified with quality. Both for the equity and fixed income mix.
It’s far too easy, especially for retirees, to trade in quality for the lure of more yield. The last six years have been brutal on interest income returns, so it’s completely understandable. Just not always wise.
Quality is a best friend of prudent long-term investors who invest within their true investment profile. I’m reminded of another phrase from children’s books that reads something like “slow wins the race”.
4. Get on base often
Limit exposures to single stock investments to sensible accumulations. Particularly, if the company is also the employer.
Individual levels above 5% start to raise the caution flags. Also refrain from loading up on those must have geographies and sizzling hot bandwagons of the day.
In baseball, it’s preferable to get on base frequently. Rather than always aiming for the home run. The same applies to serious portfolios.
If some excitement must be part of the portfolio, carve out a small portion. Something that won’t hurt much if it blows up. Then invest that money in a more aggressive way. Just don’t bet the farm.
I agree that hitting investment home runs is exciting. However, trying to achieve high returns on a few blistering hot selections is a low percentage strategy.
Sadly, the strikeouts can inflict serious portfolio damage. Often, for a long time.
That’s my take. Position the serious money portfolios with the markets. Adopt these four smart moves.
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