7 minute read
FISCAL FITNESS
MICHAEL J. DONNELLAN King Financial, Inc.
SMART INVESTING STRATEGIES
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Risk analysis and time horizon investing is all about planning. You need to think about your goals, whether it could be buying a house, funding college, or planning for retirement. Once you have done that, investment selection is based on the amount of time you have until the goal must be funded.
When investors have longer time horizons, they generally take on more risk. This is because the extended amount of time allows the market to recover from a downturn. As the funding date approaches, assets are shifted to more conservative investments to reduce the risk of market-related losses derailing your strategy.
We have had many discussions with clients closing in on retirement who think they automatically need to move to conservative investments, but the reality is that the retirement date is not the end goal. Life spans have increased and retirement planning should look forward a number of years or even decades.
According to the Social Security website (www.ssa.gov/ oact/STATS/table4c6.html) the life expectancy for a male is 81.58 years and 84.56 years for a female. That’s a lot of time for your investments to continue to work! DIVERSIFICATION The best strategy is to stay the course in respect to diversification. If the markets look a little too expensive, and other investors seem “fat, dumb and happy,” get defensive and move some assets into cash or more conservative investments. When everyone is panicking in a declining market, look to buy. Bottom line, greed and fear can help investors judge market fluctuations.
Make sure your assets are properly diversified, though. It is sometimes advantageous to be overweight or underweight certain sectors at different times, but they should be periodically reviewed to keep a reasonable balance. I remember almost 20 years ago, when interest rates were declining, home builders were among top performers, but then consistently hit new lows when rates started to rise. Without rebalancing, that portfolio was overweight in your portfolio, so the losses felt worse. continued on page 14
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Then, about a decade ago, the oil and gas sector rose dramatically with crude oil rising near all-time highs. Of course, stocks in those sectors have severely underperformed since then. Diversification and rebalancing help maintain sectors from dominating the overall portfolio.
Sometimes an investor might want to diversify away from certain sectors though. During the Covid-19 pandemic it made sense to reduce exposure to certain sectors of the economy, as travel and entertainment ground to a halt. But long-term investors should review their portfolios to maintain desired balance.
DOLLAR COST AVERAGING The basic rule of dollar cost averaging is to invest a set dollar amount at regular intervals such as monthly, quarterly, or annually, regardless of the price per share of the investment.
As the price per share moves up and down, the dollar cost averaging shareholder will automatically purchase more shares when the price per share is low and fewer shares when the price per share is high. The result of employing this strategy over the long run will be that the average cost per share will be lower than the average price per share for that period.
CONTROL EMOTION Emotion drives financial markets as much or more than market fundamentals. As investments grow, confidence grows. And while you don’t know exactly where the top of the market is going to be, there is a feeling of euphoria when returns are favorable. This is also the point of maximum potential risk for your portfolio. Conversely, as investments lose value, confidence diminishes and you begin to feel nervous. And while you don’t
Scenarios illustrated are hypothetical in nature, results may vary. Investing is subject to risk which may involve loss of principal. Past performance is not indicative of future results. know exactly where the bottom of the market is going to be, there is a feeling of despondency when returns are unfavorable. This is also the point of maximum potential opportunity.
A diversified portfolio can help protect you from the extreme highs and lows of market volatility, which in turn can help prevent you from feeling extreme emotions as your portfolio expands and contracts. The good thing about volatility is that it creates opportunity. When the market continually rises, you don’t get a chance to buy quality stocks at attractive prices. Volatility will give active investors the opportunity to buy and sell the short-to-intermediate market movements.
I’m constantly reminded of the words of Sir John Templeton (probably because it is printed on the wall in my office) who said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
Every investor has different goals and strategies. I believe it is important for the investor and their advisor to develop rules and strategies to help increase profits and reduce risk. Talk to your financial professionals and tax advisors to determine your specific needs and goals.
The M3 Wealth Management Office does not provide legal or tax advice. Consult an attorney or tax professional regarding your specific situation. The information herein is general and educational in nature and should not be considered legal or tax advice.
Michael J. Donnellan specializes in stock selection and retirement planning. Feel free to contact him with any questions or comments at the M3 Wealth Management office at: 17601 W. 130th Street – Suite 1, North Royalton, Ohio. Phone number (440) 652-6370 Email: donnellan@m3wealthmanagement.com Securities and advisory services offered through L.M. Kohn & Co. Registered Broker/Dealer Member FINRA/SIPC/MSRB 10151 Carver Rd. Suite 100 – Cincinnati, Ohio 45242 (800) 478-0788
OHIO GREEN INDUSTRY ALLIANCE
CLAY SHOOT
2020 Fall Fundraiser
Tuesday, October 27, 1–4:30 pm
Hill ’n Dale Club
3605 Poe Rd Medina, OH 44256
Co-hosted by:
Enjoy a day with friends and get to know your fellow colleagues in the green industry while raising money for the Ohio Green Industry Alliance Political Action Committee.
The afternoon includes a 16-station clay shoot course, dinner and raffle prizes. Bring your own shotgun and ammunition. Ammunition may also be purchased onsite. Ear and eye protection are mandatory and are also available to purchase.
To Attend:
$75 PAC donation includes 16-station course and dinner $35 PAC donation for dinner only Pre-registration is required. Registration deadline: Friday, October 16
Register: www.onla.org/clayshoot
What is the
Ohio Green Industry Alliance?
Ohio’s green industry can’t take a passive approach to advocacy. the Ohio Green Industry Alliance strengthens our collective story with proactive leadership.
The PAC financially supports political candidates who have shown a commitment to understanding our industry and the challenges our businesses face. These candidates can beneficially influence legislative issues related to Ohio’s green industry.
Consider your PAC donation an important investment to protect your business and ensure our continued successes. A strong PAC means a larger impact. Learn more at: onla.org/OGIAPAC
