Many investors, including some of REDW Stanleyâ€™s clients, are a bit uncomfortable with the present stateÂ of the stock market. They feel that valuations are tooÂ high, that the extended life of the recovery is undeserved, andÂ that, any day now, the other shoe is going to drop (meaningÂ the market will experience a correction â€“ which, incidentally,Â is a normal part of an economic cycle). What can we, as yourÂ financial partner, do to help improve your comfort level?
We can help by keeping your focus on those things you canÂ control, rather than fixating on those you cannot. Here are 10Â investment basics you can count on:
- The highs and lows of the market are outside your control,Â but how you deal with those highs and lows is somethingÂ over which you do have control. Your behavior does impactÂ your portfolioâ€™s performance. Call your Relationship ManagerÂ when you have questions about the market to make sureÂ you are invested according to your risk tolerance to achieveÂ your financial goals and objectives.
- Risk, which is the permanent loss of capital, can be controlledÂ by being invested according to your personal risk toleranceÂ and maintaining a long-term view of the market.
- Time in the market is a key to increasing your portfolioâ€™sÂ value â€“ not timing the market. Compound interest, as wellÂ as the proper asset allocation, are provable ways to grow aÂ portfolio in order to reach your financial goals.
- Remember the Oracle of Omahaâ€™s advice, to be â€œgreedyÂ when others are fearful and fearful when others are greedyâ€.Â It is a challenge to see a market downturn as a buyingÂ opportunity (who invested in the stock market on MarchÂ 9, 2009?), so commit to continue investing and trying toÂ increase the dollars invested even when the TV, print andÂ radio pundits are suggesting otherwise.
- Diversifying your portfolio does not mean your portfolio mayÂ not decrease in value. It does protect your portfolio fromÂ unnecessary risk and from making a large bet on a tip thatÂ you got from a friend on the golf course. You buy insuranceÂ to protect your home, even though you may never make aÂ claim against the policy. Diversification is similar in that theÂ benefits are not apparent while the market is going up, butÂ you can see the benefits in a market downturn.
- There is a strong relationship between risk and reward. It isÂ tempting not to rebalance your portfolio when the market isÂ going up by selling those assets that have increased in valueÂ and buying those assets that have not done as well. I haveÂ had clients refer to that process of â€œselling the winners andÂ buying the losersâ€. However, not rebalancing on a regularÂ basis subjects your portfolio to more risk than is necessaryÂ without the commensurate reward. Think of rebalancingÂ in terms of good fielding wins baseball games and goodÂ defense wins football games.
- Trying to forecast what the market will do is very similar toÂ forecasting the weather: it can be done, but not with regularÂ success. A favorite saying of mine is: Weather forecastersÂ and professional baseball players are paid a lot of money toÂ bat 250 (no offense to either of those groups). Be aware ofÂ the market and the forces that affect the market, but investÂ your portfolio according to your individual risk tolerance, workÂ with a financial professional in whom you have confidence,Â and enjoy your life.
- Nobel laureate Paul Samuelson said it best: â€œInvestingÂ should be more like watching paint dry or grass grow. If youÂ want excitement, take $800 and go to Las Vegas.â€ A basicÂ premise of investing is to determine your risk tolerance, putÂ your dollars to work in a portfolio invested according to yourÂ risk tolerance, and rebalance on a regular basis to maintainÂ the appropriate risk level in your portfolio.
- One of the most infamous phrases in investing is â€œThis timeÂ is differentâ€. Itâ€™s tempting to think that manias and excessesÂ will last forever (think tulips, South Sea Company, InternetÂ stocks, and real estate), but they do not. While in the shortÂ term markets may be driven by trends, emotions, politicsÂ and irrational exuberance, they will all run their course, whileÂ fundamentals such as growth of corporate earnings willÂ prevail.
- Use the right benchmark: your personal financial goals. YourÂ goals will make investing meaningful to you and help youÂ focus on what is important to you. Research confirms thatÂ goals-based investors are more likely to focus on their goalsÂ during stressful times and to continue their investing strategyÂ because their goals are significant and meaningful to them.
Did you know?
- Now in its 8th year, REDW is hosting itsÂ annual Tribal Finance & Leadership Conference rightÂ here in our own back yard, at Sandia Resort & Casino,Â November 7-9, 2017. The Conference will provide thoseÂ in tribal leadership roles, nationwide, with guidance on topÂ financial, legal, human resources and leadership issuesÂ affecting Native American Tribes.
- Heads up to those of you whoÂ are attending weddings this season: According to theÂ American Express Spending and Saving Tracker, theÂ average wedding guest spent $70 for each wedding
attended last year. Source: CNBC.com.
- REDW Stanley has a number of musicallyÂ inclined clients who have displayed their talents for years.Â One of our clients, now in her early 60â€™s, began playingÂ the guitar in the fifth grade and became a professionalÂ musician in her late teens/early 20â€™s. She now plays anÂ electric bass guitar and is also a singer with a fondnessÂ for jazz and blues. She performs known musical scores
as well as original music and is starting a band in theÂ Santa Fe area.
Copyright 2017 REDW Stanley Financial Advisors, LLC. All Rights Reserved. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice.