What We Believe About Investing... and You Should Too

We are currently living in a world with a lot of changes and uncertainty. We often find in a time like this, the best question to ask is what won’t change ... these six truths give us a way to stay sane by focusing on fundamental truths regardless of the environment.

Most financial news programs are for entertainment and are designed for ratings, not advice. The true value of a well-constructed portfolio is measured in decades not minutes or hours. If you need to re-do your portfolio every day, what you bought yesterday was a mistake. (This over emphasis on 24 hours news leads to truth number 2.)

Emotion is often poison for long-term investment performance. It often causes investors to do the wrong thing at exactly the wrong time. Because of emotion, most investors miss out on the majority of market returns over time. They sell when the markets are down and buy when the markets are up. They say things like, “This time it’s different.” In reality, this time is not different. The market goes up and down over time and that is totally normal. We can’t control the market, but we can control our behavior. The good news is the world can only end once, so if “this time is different” ever truly happens, it probably won’t matter.

Asset allocation and diversification are the antithesis of emotional investing and the best strategy for an unknown future. This is a logical approach to investing. We surrender to the thought that anyone knows for sure what will happen next. For this reason, we own some portion of all asset classes based on our research, lessening the impact of market swings. We think it can make sense to tilt the allocation when appropriate, but always in the context of a portfolio that still maintains broad diversification.

Your allocation should be goals based. The problem with equities is they go down sometimes and they don’t send us a memo ahead of time to warn us. Because we never know for sure when equities are going to go up or down, we need to have our allocation designed in a way that any short-term financial needs can be covered by cash, CDs or bonds if needed. Stock market volatility is unforgiving if we have to sell equities in a down market. The right allocation means never having to liquidate a distressed asset at an inopportune time. 

The market is cyclical and because of this, the longer something underperforms its average relative performance, the more likely it is to outperform in the future. This is called returning to the mean. We take advantage of this concept by rebalancing. It is a systematic way to buy low and sell high. It is the disciplined approach of rebalancing your portfolio to its ideal allocation when an asset class goes beyond our desired collar. We put a collar of 5-10 percent on each asset class. (Disciplined and non-emotional rebalancing can be a huge opportunity in market events like 2008-2009, it meant you would have sold bonds and added equities when equities were at extremely distressed pricing.)

All other things being equal, a tax-efficient and low-fee portfolio will outperform. We utilize several different tax strategies to ensure performance and after-tax performance are as close to each other as possible. (This can be achieved through a variety of strategies ... asset location, tax-loss harvesting, municipal bond investing, tax-efficient funds and ETFs, charitable gifting of appreciated stock, tax-deduction for advisory fees, and the appropriate use of tax deferred vehicles ... just to name a few.) As it relates to fees, we believe that if data shows active management is unlikely to beat an index in a certain asset class, then indexing can be a great strategy for part of the portfolio. In addition, it is essential to use institutional share classes to make sure the lowest cost option is selected for a portfolio.

 So those are the basics. Pretty simple right! So why do you need a financial advisor if it is that simple? Why pay someone 1 percent for something you could do on your own? Great questions... There are two main answers:

First, a good financial advisor can take a logical and long-term approach to your money and have a steady hand in times or turmoil. Much easier said than done when it is your money. An emotional mistake like getting out of the market in February of 2009 could have cost a client. In addition, I often find clients don’t make time for their portfolio. They don’t rebalance in a systematic way and don’t keep up with the tax code to make appropriate moves. Lastly, they usually don’t do the research to decide on which asset classes to be active in or passive in or what managers to use. In summary, even if they know what they are doing, they don’t execute.

Second, fees paid to a good advisor should cover so much more than portfolio management. It should cover education and retirement forecasting, budgeting, tax and managing debt. They should be keeping you on track with your most important goals. They should be a coach for your money. The best advisors even go a step beyond and ask questions about legacy and force you to analyze the health of your relationships with those around you and your relationship with money. The right conversation not only leads to a richer bank account, but a richer and more meaningful life. 

The right kind of advice is worth a lot more than 1 percent. If you’re not sure what you’re getting for your 1 percent, call us for a deeper conversation about your money and more importantly your legacy.

Beshear Financial is a marketing name for Joseph B Beshear in their capacity as a representative of Northwestern Mutual and is not a legal business name. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. Joseph B Beshear is a Representative of Northwestern Mutual Wealth Management Company® (NMWMC), Milwaukee, WI (fiduciary and fee-based financial planning services), a subsidiary of NM and federal savings bank. All NMWMC products and services are offered only by properly credentialed Representatives who operate from agency offices of NMWMC. Representative is a District Agent of NM and Northwestern Long Term Care Insurance Company, Milwaukee, WI, (long-term care insurance) a subsidiary of NM, and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA (www.finra.org) and SIPC (www.sipc.org).