Andrew Adams, an investment strategist with Raymond James, recently penned some New Year’s resolutions for investors. This column borrows heavily from his piece.
Invest. Most people remain woefully underinvested, Adams noted. “No one looks back and says ‘I should have saved less money.’” Invest first in yourself, building skills and possibly in your own business. But don’t fail to invest for college and retirement if you’re able. You can’t start too soon.
Invest in yourself. “Practically everything I know about the markets I learned through a combination of self-study and first-hand experience,” Adams wrote. “Buying a few books and spending more time reviewing your portfolio and past buy/sell decisions have the potential to be the best investments you can make.” Subscribe to Money magazine and read every page of every issue. After a decade of this bite-sized, self-study course, you could know more than many advisors. Amazing things can be accomplished with small efforts compounding over time.
“Stay on top of the sector rotations … rotating into the outperforming sectors and selling out of the areas of the market breaking down can boost returns and minimize the chances of holding onto something that tanks,” Adams wrote. Sometimes money managers inspire through their genius, but oftentimes it’s just paying attention to trends that’s most important. Regular reviews of holdings can help you manage portfolio risk.
“Don’t let politics get in the way of your investments. This goes both ways,” Adams wrote. With increased partisanship and divisiveness comes increased risk investors will make dramatic portfolio changes based on the emotions of the day. Economic and earnings data matter much more than who’s winning the popularity derby in Washington.
“Don’t buy what the doomsdayers are selling,” Adams warned. Just as “clickbait” headlines threaten to ruin the already tawdry industry of journalism, online ads trolling for anxious investors to sell them extreme portfolio solutions constitute a real problem. Adams noted: “Some people make a good living on selling fear and making the worst-case scenarios sound a lot more likely than they are.”
Manage your downside. Well-managed stock portfolios don’t “go to zero,” Adams said: “It’s being overly concentrated in a stock that goes down 80 percent that kills a portfolio.” In the 2008 financial crisis, the market swung from overvalued to undervalued in the matter of a few months, a downturn of more than 50 percent at its worst. It took a few years for investors to recover, but eventually the market did recover. The investors who didn’t recover were those who sold out at or near the bottom. Know your capacity for experiencing loss. If you calculate a 40 percent decline in your current equity portfolio fear it would cause you to go to cash, then reduce your equity weighting now while you’re still ahead. If you can just manage this one aspect of investing, you’ll almost guarantee yourself a successful investing future. Don’t be the investor who locks in losses at the bottom. If you avoid that fate, you’ll probably have sufficient time to recover from whatever downturns you’ll encounter. And if you haven’t experienced a serious downturn yet, be patient. It’s coming.
Invest. In spite of the risks, long-term stock market investors tend to make money. Most people remain woefully underinvested. If you manage risk and remain patient while enduring the inevitable downturns, the stock market can help you grow wealth over time. Invest a little time in understanding your portfolio and don’t listen to the doomsdayers, but make certain you don’t have more invested than you could afford to temporarily lose. Manage your risks and remember the biggest risk you face is probably your own emotional response to market gyrations.
Send me an e-mail at DMay@Wealthsource.com if you’d like me to send you a copy of Andrew Adams’ entire commentary.