Investing to Reach Your Goals
Early preparation for summer camping or canoe trips is part of the experience. Knowing what to expect, accumulating the proper tools and practicing technique will increase the chance of success. Gearing up starts the trip long before hitting the water. Investing and planning for future events should be addressed with the same disciplines. Achieving your best outcome should not be ignored or left to chance.
Preparing for your future is best tackled as a life-long task. Work, earnings, and paychecks will pay for a lifestyle. But future large ticket items or accumulating assets for when your earnings potential is lower thrive from consistent saving and investing behavior. Let's say you do save and put assets away. Are you using the best tools available or using a big box, off the shelf solution? Successful investing in savings has a few basic tenets. Let’s look at two of them: Diversification and Active Management
Diversification. A diversified portfolio has a lower risk when compared to a concentrated portfolio and a higher probability of achieving your targeted return on assets. In equities, the portfolio diversification should consider market capitalizations (e.g., large-, mid-, small-cap), style(growth and value), and geographical regions. Fixed income can focus diversification across sectors and regions, such as U.S. investment-grade, high-yield, non-U.S. developed, and emerging market bonds.
Diversifying holdings and exposures minimizes the need to be 100% correct in your decisions and provides smooth returns that can help in financial planning. For years US equity investors have been rewarded by focusing on US dollar-denominated stock markets. Foreign stocks, while a good idea for diversification, have underperformed dramatically in the past few years. Hidden in positive first half 2017 returns is a big outperformance by foreign equities (both Developed and Emerging Markets). Diversifying globally and a portfolio designed to deliver the best risk-adjusted return would have allocated to foreign markets. Foreign markets have favorable projected returns versus the US and while diversifying exposure isn’t always correct it does generate consistent and predictable returns for portfolios.
Active Management. Index product providers and their marketing machines would have you believe benchmark returns delivered through passive management are the best that you can get. For the typical investor, hedge funds and alternatives are either expensive or not available. We suggest individual investors consider employing several best-in-class active management strategies in their asset portfolios. Thoughtfully constructed active portfolios can embrace some or all of the methods below.
Investor Tools for adding efficient Risk-Adjusted returns
- Portfolio construction based on sector projected returns
- Strategic and tactical allocation guided by an individualize Investment Policy Statement
- Active management of specific portfolio styles
- Research-based fund selection
- Individualized security portfolios
- Outcome-oriented solutions targeting inflation, health care costs, and longevity protection.
Diversification and active management are tried and true tools. Broad strategic exposures with a focus on calculated risks and returns have paid benefits for investors. Owning the decisions in your portfolio is a good start. A trusted advisor can help you make important investment decisions and keep you disciplined and focused on your long-term plan. The team at Laurentide will be happy to discuss how our approach to diversification and active management can benefit you.
Please visit our website www.LaurentideAdvisory.com for important disclosures.