Focus on Investment Strategy

Often I write about planning, goal setting, and ways to get and protect your wealth for yourself and loved ones. Today I’d like to focus on something that many people think is the primary reason for a financial advisor—investment strategies.

Investments are clearly a vital part of a complete wealth plan. All the Planning and goal setting doesn’t get you anywhere if you don’t execute a successful investment strategy. Thus although in my practice I emphasize the importance of all the key areas of financial planning, ultimately my main role for many clients is money management.

Approach to Investment Strategy

There are many approaches to managing investments. Mine can be summarized as follows:

1. Hit singles and doubles, forget going for home runs. Invest consistently and for the long term.
2. Match your investment strategy to the goal timeline. If you are investing for retirement, recognize how long before you will need that money and take a little more risk. On the other hand if your goal is to put aside money for a car, a home, an education fund, or another relatively near term event, be more prudent in how you invest that money, if you invest it at all.
3. Invest broadly—stocks, bonds, real estate, commodities are all possibilities. Invest widely – USA, EUROPE, ASIA, the Americas, etc. Invest in all sizes—small, medium, large–micro and mega sized organizations. The ultimate “don’t put all your eggs in one basket” idea.
4. Although we have a very global economy there are still differences in performance of economies in the various parts of the world at any point in time. This is true for the range in size of companies and the variety of investment options also. By spreading your investment dollars among the myriad choices available you can reduce the likelihood of an “all or nothing” performance in your portfolio.
5. Decide on your investment philosophy – active management vs passive or a combination of both. Active means paying someone to regularly buy and sell holdings in your account based on their research of what are the best investments to own at a point in time. Passive investing takes the approach of “buying the market” – all the stocks or bonds in a certain category – rather than trying to select the few that will outperform the rest. This is normally a lower cost approach (less trading and research costs) and will typically have a more consistent return, not reaching the highs or lows of an actively managed portfolio.

There are more steps to take and more issues to consider when building and maintaining your investment portfolio. My next few blogs will speak to my ideas on these topics. A lot to consider and unless you have been trained in investments I encourage you to find a professional to help you in this area that is so critical to your financial success.