And so How Are We Doing…
As of June 29th, 2015? Richer than yesterday or poorer? The stock markets were generally down. The S&P 500 lost about 2%. So our financial wealth is probably a little lower.
Perhaps we had gains in other aspects of our life: met a new friend, helped someone who was in need, achieved a personal goal, or something else positive happened. Just as in investing our efforts in daily life will produce results that ebb and flow. We can easily see our financial results because so many resources are available 24/7 to help us count.
Not so easy with non-financial aspects to our life. We need to do our own counting and that takes effort and a way to measure. The measures are all up to us. How will you count your non-financial wealth? If you ponder that a bit, those you care about will surely benefit, and I believe you will also.
Investment Returns
In October 2014 the S&P 500 was at 1862.49. By the end of December it had grown almost 12% to 2081.88. Three and a half months later it had gained not at all. Nor has it gained in the first 6 months of the year. The reality is it has gained many points in the last months and lost even more.
Active versus Passive
Every day thousands of people, if not millions, decide about buying, selling, and holding their investments. Only to wake up the next day and do it all over again. Active managers. There are passive managers who believe owning “the stock market” and trading very little is a better approach.
I mostly hold even when I am “ACTIVE” in that I am picking a subset of the total stock market. Example — U.S. LARGE CAP. 25 years experience has led me to believe there is little to be gained with daily trading unless you are running a mutual fund that requires you to actively trade.
I’ve seen markets rise over the long run and that result is what I’m helping clients understand. If not, none of this really matters. Much more important than the daily ups and downs is the amount of risk you are willing to take and the mix of assets you own.
Asset Allocation
Research has shown time and again more than 90% of the return you earn is based on the ASSET CLASS not the individual holding. Yes, everyone wants to own Apple, but owning a mix of tech stocks provides a similarly positive return at much less risk. Don’t put all your eggs in one basket applies even to Apples!
- Determine your risk tolerance — per cent stocks and bonds
- Buy a diverse mix of asset classes — US, International, Big/Small Companies, Growth/Value
- Re-balance to maintain the risk tolerance percentages
- DO IT AGAIN!
Simple but not always easy. Helping clients follow this strategy is one of my most satisfying roles.