Here is an interesting excerpt from Roger Gibson's timeless investment book Asset Allocation, Balancing Financial Risk
Great words of wisdom from Roger Gibson.
Clients must understand all types of risk and must accurately assess the relative importance of each type in their particular situations. The myth of the ideal investment must be destroyed. There are no liquid investment alternatives with stable guaranteed principal values which can provide real returns by consistently beating the combined impact of inflation and income taxes. Any misconceptions that go uncorrected will have a tendency to surface later, often to the detriment of the investment management process.
Roger C. Gibson Asset Allocation, Balancing Financial Risk Page 18.
Thursday, August 13, 2009
Thursday, August 6, 2009
Heeeeeere's the pitch
And Heeeeeeere’s the pitch
Over the past eleven months, our financial markets have endured a journey of historical proportions. We are now seeing the markets move in a much more rational manner. This is a big change from the 900 point intraday moves on the Dow a few months ago. As a result of market turmoil, financial services firms are cranking out magic product solutions by the truckload and handing them off to motivated salespeople to sell sell sell.
These products take on many forms and are being promoted everywhere. Nobody is safe from marketing noise. I am not even safe in my own car. My favorite talk radio stations switch to financial talk format on the weekends and sometimes I cannot resist listening in to their programming.
A couple of weeks ago I tuned into a very confident host and listened to him sing the praises of his firm. When you go to his website, you quickly understand that he too is pitching products. Your broker or advisor may have already pitched you the “avoid the next depression” fund.
As a family office practitioner, I field calls and emails from firms pitching products daily. Their value propositions are often strikingly similar. Their message is designed to appeal to investors who are still feeling an emotional response to large fluctuations in their portfolio.
If you are beginning to reconsider the risk in your portfolio, talk to your advisor. I recommend retaining an advisor who is serving as an advocate for you and your family. Their position of independence will insure that they do not emerge as another pitchman. They can help you review your strategy and they will keep you insulated from marketing noise.
Recently, I have noticed an increase in investors asking about adding alternative asset class solutions such as managed futures. Alternative asset classes provide many benefits to a portfolio. Most of the time Alternative Assets are added to a portfolio for the non-correlated movement they show against other asset classes like stocks or bonds. In other words they do not fluctuate in the same direction as the core holdings in the portfolio. This helps to reduce portfolio volatility.
The pitchmen are out in droves selling managed futures funds because they understand investors are interested in ways to reduce the fluctuation they experienced in Q4 08 and Q1 09. Marketers see now as the time to remind jittery investors that the next big storm could be on the way. However, a fundamental change in your financial situation is a good reason to consider making some tactical changes in your portfolio. Fear alone is not a good reason to switch horses mid stream.
Sometimes feeling fear is unavoidable. It is a normal human reaction, but do not let fear drive your investment strategy or you will be traveling in circles. Not to mention, irrational behavior can also result in unnecessary fees and tax consequences. As the market finds its legs, investors who stuck to their original strategy will be happy that they did not panic in the midst of stormy seas.
Sometimes in a storm you need to pull in the sails and wait out the heavy winds. Just make sure you resist the snap decision to buy newer “storm-proof” boat as soon as the dark clouds dissipate. Your old boat will probably get you to your destination just as well.
Ryan
Over the past eleven months, our financial markets have endured a journey of historical proportions. We are now seeing the markets move in a much more rational manner. This is a big change from the 900 point intraday moves on the Dow a few months ago. As a result of market turmoil, financial services firms are cranking out magic product solutions by the truckload and handing them off to motivated salespeople to sell sell sell.
These products take on many forms and are being promoted everywhere. Nobody is safe from marketing noise. I am not even safe in my own car. My favorite talk radio stations switch to financial talk format on the weekends and sometimes I cannot resist listening in to their programming.
A couple of weeks ago I tuned into a very confident host and listened to him sing the praises of his firm. When you go to his website, you quickly understand that he too is pitching products. Your broker or advisor may have already pitched you the “avoid the next depression” fund.
As a family office practitioner, I field calls and emails from firms pitching products daily. Their value propositions are often strikingly similar. Their message is designed to appeal to investors who are still feeling an emotional response to large fluctuations in their portfolio.
If you are beginning to reconsider the risk in your portfolio, talk to your advisor. I recommend retaining an advisor who is serving as an advocate for you and your family. Their position of independence will insure that they do not emerge as another pitchman. They can help you review your strategy and they will keep you insulated from marketing noise.
Recently, I have noticed an increase in investors asking about adding alternative asset class solutions such as managed futures. Alternative asset classes provide many benefits to a portfolio. Most of the time Alternative Assets are added to a portfolio for the non-correlated movement they show against other asset classes like stocks or bonds. In other words they do not fluctuate in the same direction as the core holdings in the portfolio. This helps to reduce portfolio volatility.
The pitchmen are out in droves selling managed futures funds because they understand investors are interested in ways to reduce the fluctuation they experienced in Q4 08 and Q1 09. Marketers see now as the time to remind jittery investors that the next big storm could be on the way. However, a fundamental change in your financial situation is a good reason to consider making some tactical changes in your portfolio. Fear alone is not a good reason to switch horses mid stream.
Sometimes feeling fear is unavoidable. It is a normal human reaction, but do not let fear drive your investment strategy or you will be traveling in circles. Not to mention, irrational behavior can also result in unnecessary fees and tax consequences. As the market finds its legs, investors who stuck to their original strategy will be happy that they did not panic in the midst of stormy seas.
Sometimes in a storm you need to pull in the sails and wait out the heavy winds. Just make sure you resist the snap decision to buy newer “storm-proof” boat as soon as the dark clouds dissipate. Your old boat will probably get you to your destination just as well.
Ryan
Subscribe to:
Posts (Atom)
