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Recommit Your Portfolio To Your Plan

Investing Retirement Funding

Dear Investor,

After a year of outsized market gains, and given it’s that time of year to reflect, may I suggest an extended reflection on why we invest the way we do?  Allow me to attempt this in bullet-form:

  • Successful investing is goal-focused and planning-driven.  Most unsuccessful investors are market-focused and performance-driven.
  • Another way of saying this is to say that really successful investors act continuously on a plan, ignoring fads and fears of the moment (I’m talking to you, Bitcoin!), while failing (and flailing) investors are continuously (and randomly) focused on “the economy” and market “news.”
  • My clients are working on multi-decade or multi-generational plans for such great goals as education, retirement, and legacy.  Current events in the economy and the markets are only distractions when seen through this lens.  Because of this, I make no attempt to create investment strategy from today’s or tomorrow’s headlines.  Instead, I align my clients’ portfolios with their most cherished long-term goals.
  • I don’t forecast the economy, I don’t attempt to time the markets, and I cannot – nor can anyone else – consistently project future relative performance of specific investments based on past performance.  In a nutshell, I’m a planner rather than a fortune teller.  I believe my highest value services are planning and behavioral coaching – helping clients avoid overreacting to market events both negative and positive.
  • My essential investment principals in pursuit of highly successful financial plans are:
  • The performance of a portfolio relative to a benchmark is largely irrelevant to financial success
  • The only benchmark we should care about is the one that indicates whether you are on track to accomplish your financial goals
  • Risk should be measured as the probability that you won’t achieve your financial goals
  • Investing should have the exclusive objective of minimizing this risk to the greatest extent practicable
  • Once we’ve put a financial plan in place and funded it with the investments that seem historically best-suited to its success, I very rarely recommend changing the portfolio beyond regular rebalancing.  I agree with Nobel Prize-winning behavioral economist Daniel Kahneman who said, “All of us would be better investors if we just made fewer decisions.”
  • Since 1980, the average annual intra-year decline in the S&P 500 has exceeded fourteen percent.  However, even without counting dividends, annual returns have been positive in 29 of these 38 years with the index going from 106 at the beginning of 1980 to 2,674 at the end of 2017.  The great lesson here is that temporary declines have been very different from permanent loss of capital and the best antidote to volatility is the passage of time.  I can’t say it will always be this way, I can only show that it has always been this way.  As Sir John Templeton has said, the four most dangerous words in investing are “it’s different this time.”
  • The nature of successful investing is the practice of rationality under uncertainty.  We’ll never have all the information we want because we cannot know the future.  Therefore, we use the principals of long-term investing that have most reliably provided favorable long-term results over time:
  • Planning
  • Rational optimism based on history
  • Patience
  • Discipline

Such is the commitment of our portfolio to support our plan.

-Joe