Investor Update – What’s Your Philosophy on Investing?
You know I have heard a number of different ways to skin this cat. From passive management (attempting to replicate indexes) to active management (attempting to outperform indexes), to hiring other managers to managing internally. However, what concerns me most is when you don’t hear your Advisors philosophy on investing.
First before I beat up on that too much let me tell you mine…
I believe that if you are investing money in the markets you should aim for index returns. No more and no less. And you should try to achieve this in the most cost effective manner as possible. I think if you hear of Advisors or managers beating the indexes by a large margin, you should be as concerned (or even more concerned) than if they underperformed by the same amount. Why…? Return is correlated directly with Risk. In my experience whenever I see outperformance of a portfolio it usually means that there is excessive risk inside it. This means, yes you might get it right and feel good, but you can also get it wrong and can decimate a financial plan.
Look, I also think to save costs on fees, if investors are willing and able to invest their own money, then they should do it. However most don’t, and need help and that’s why my industry exists. Don’t feel bad, I’d like to fix my car when it breaks down and replace my old kitchen myself to save money but I fear the result of this would get me a right hook from the Bride. But when you do hire a company to manage your investments make sure you understand what your invested in, why you’re invested in it, and what it costs.
I manage a small number of portfolios that I am able to devote my time and attention to. I manage each model against a benchmark for both returns and volatility.
- Conservative model – Measured against benchmark of 40% S&P 500 and 60% Barclay Aggregate Bond Index
- Moderate Model – Measured against a benchmark of 60% S&P 500 and 40% Barclay Aggregate Bond Index
- Growth & Income Model – Measured against a benchmark of 100% S&P 500 Value Index
To choose which model I recommend clients invest in, is totally based on how much risk they are willing to take to achieve their goals. I believe if you do not need to take risk to achieve your goals then don’t take the risk. My planning software will give me the optimal portfolio to help achieve a client’s goals, and this is how I implement it.
We do manage custom portfolios for clients in addition to these models, due mainly to large gains in existing holdings.
We hold individual stocks, bonds and REIT’s. This ensures there is no other costs involved in managing your money. Clean and transparent.
Sincerely,
Any opinions are those of Mick Graham and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Barclays Aggregate Index is comprised of the Government/Corporate, the Mortgage-Backed Securities indices. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Holding stocks for the long-term does not insure a profitable outcome. Investing in stocks always involves risk, including the possibility of losing one’s entire investment. There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.
