investment objectives

A New Way of Looking at Your Wealth

paradigm

A paradigm is a typical pattern or example of something, a model. It is a set of concepts or mindsets. We frequently find ourselves at odds with the old paradigms about investing and finance, as you know.

One of the most irksome things (to us) about investing is the use of the terms ‘aggressive’ and ‘conservative’ in describing an investor’s investment objective. The industry-standard scale goes from conservative to aggressive in five steps, with prescribed mixes of stocks and bonds for portfolios at each step. At the conservative end, the portfolio would be nearly all bonds; at the aggressive end, nearly all stock.

But is it really conservative to expose wealth to the long term risk of purchasing power loss and missed opportunities that accompanies investing in fixed dollar portfolios of bonds and cash? We don’t think so.

An all-fixed income portfolio is typically suitable for short time horizons, where it is important to know that portfolio value will remain relatively stable. So in place of ‘conservative,’ we would use ‘short term’ to describe that end of the spectrum.

By the same token, is it really aggressive to invest for growth of capital over extended periods? As difficult as it is to make one’s money last a lifetime, growth may be handy for long term investors—for many, it can be crucial to financial success.

So instead of ‘aggressive’ for the other end of the scale, we would say ‘long term’ makes far more sense. Thus, instead of the ‘conservative to aggressive’ axis, we believe the continuum should run from ‘short term’ to ‘long term.’

It is a new paradigm, so to speak, for describing investment objectives. It replaces abstract and unclear terms with simple, easily-understood phrases. And it avoids the unfortunate connotations of conservative as prudent and aggressive as stupid. (Doesn’t ‘aggressive driving’ really mean ‘stupid’ driving?) All in all, we think this is a more useful way for you to think about your wealth.

A related issue confuses the conventional wisdom. The old paradigm mistakes volatility for risk. That may be at the heart of the misguided use of the word ‘aggressive’ since long term portfolios necessarily do fluctuate. (We explained why we believe that aspect of conventional wisdom is counterproductive in this short essay.

The bottom line: we always try to think about the best way for you to meet your goals. We look at the world and strive to see it as it is, not in accordance with some stale textbook written in a different age for different conditions. We cannot know that our view is correct, and we have no guarantees. But we do work at gaining a better understanding of how to grow your wealth.

Clients, if you would like to talk about this or any other aspect of your situation, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Broadening Our Horizons

© Can Stock Photo Inc. / phototrekker

For many years, we have specialized in total return investing. If the fruit crop is enough to live on, we haven’t needed to care what the neighbor would pay for the orchard. We have promoted the idea that living with volatility is rewarding. The concept seemed right for the times, since the prevailing low interest rates offer little return on fixed investments.

This traditional core approach hasn’t been right for everyone. Some lack the confidence that we will overcome our challenges, persevere, and continue to grow and thrive. Others just can’t tolerate the ups and downs of long term investing. While our approach is not right for everyone, some of the alternatives are not good either. Consequently, we have come to the realization that we can do a better job for you and others if we offer a range of options.

One client on the verge of retirement has a more pessimistic view of the future than we do. He concluded he ought to put half of his wealth in capital preservation strategies that are likely to hold the money together in case of disaster. And he also concluded that the growth potential of our core approach could be an important hedge against rising cost of living in the years ahead. So he ended up with a 50/50 split based on the idea that he might be right, or we might be right—and the best course was some of each instead of all of one or all of the other.

A retired couple has been comfortable with our approach, but felt that 20% in more stable strategies would offer some preservation against unexpected major health problems.

Others understand and like our traditional approach, and have no desire to change a thing. The key is, each person may make their own decision about the tradeoff between stability and growth.

So we will be bringing our values and principles to a wider range of options. We’ll be at home with a range of viewpoints and investment objectives. On the capital preservation side, we will bring our research strengths to attempt to avoid the major sources of risk and to find opportunity where we can.

That old “buy low, sell high” thing continues to influence our thinking. We won’t be interested in helping people sell out at the wrong time by getting more conservative at low points. Nor will we want to see people getting enthusiastic and more aggressive at market high points. The new structure of offerings is intended to help people find the portfolio they can live with in all market conditions—and be able to do that in our shop if they choose.

As always, if you have questions or concerns or would like an expanded discussion about your circumstances, please email or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.