Ongoing Educational Services
One of the services our clients value most is our educational seminars and content. While your dedicated Investment Counselor keeps you up-to-date on key issues, our educational resources go well beyond that. All clients receive detailed Quarterly Reviews and semi-annual Capital Markets Update videos, summarizing our market outlook and analysis for the period. All clients are invited to attend in-person seminars where they can hear directly from the Investment Policy Committee and other senior members of the firm. We also provide a series of free investment guides, books and website commentary.
FOUR RULES TO LIVE BY
How does Global Money Investor tactically build and manage portfolios to execute a long-term strategy? Navigating the market can be a rough ride, but the job of Fisher Investments is to steer your portfolio in what we believe is the right direction and keep it on what we consider the right path. There will be times when the right direction feels wrong and uncomfortable, and there will be times you'll be tempted to go in the wrong direction because it feels right. Beginning with four basic rules of portfolio management will give you an investment compass, and remembering these four rules will keep you from veering away from your objectives.
1. Select a Benchmark
First, select an appropriate benchmark. An appropriate benchmark is necessary to measure relative risk and return, and should be consistent with the time horizon for the assets. A benchmark provides a framework to construct a portfolio, manage risk, and monitor performance by comparing rates of return over time.
Tactically, a portfolio should then be structured to maximize the probability of consistently beating the benchmark, thus maximizing the likelihood of long-term success. Unlike simply aiming to achieve some fixed rate of return each year, which will cause disappointment when the capital markets are very strong and is potentially unrealistic when the capital markets are very weak, a properly benchmarked portfolio provides a realistic guide for dealing with uncertain market conditions. Your time horizon and required rate of return are major factors in determining the most appropriate benchmark.
2. Analyze the benchmark's components and assign expected risk and return
The object is to beat the benchmark fairly consistently while controlling risk relative to the benchmark. For each security, sector, and country that comprise the benchmark, assign an expected risk and return. Anticipation of market conditions in specific sectors and countries allows us to weigh them accordingly in portfolio construction.
3. Blend dissimilar securities to moderate risk relative to expected return
The basic premise is to overweight those parts of the benchmark that are expected to outperform, and under weight those parts expected to underperform. Attempting to beat the benchmark means making calculated decisions based on which components we anticipate will outperform others. Our core strategy consists of overweighing countries and sectors concentrated on those allocations.
However it is also essential to build a counter-strategy into the portfolio, in case the core strategy fails to deliver. We do this by blending in negatively correlated securities and holding them in underweight positions relative to benchmark to moderate that risk. For example, if technology stocks are expected to outperform, we may also hold some stocks that tend to zig when technology stocks zag, like pharmaceuticals, to offset relative risk if tech underperforms.
4. Always remember that we could be wrong, so we don't veer from the first three rules
Over-confidence is a dangerous trait in portfolio management. It allows one to divert from investment objectives and assume sub-optimal levels of risk. That's why we always remember we could be wrong, so we maintain our discipline and don't forget the first three rules.
The 8 Biggest Investing Mistakes
The More Things Change, the More They Stay the Same
It may seem like investors today are faced with never-before-seen challenges and complexity. Technology is ever evolving, more people are investing than ever before, and markets keep expanding to include ever more participants from new industries, nations, and so on.
But the reality is, many investing fundamentals remain unchanged. And the reasons many investors fail to meet their goals aren't because they can't keep up with the latest tactics and techniques, but because they generally fall prey to the same mistakes—repeatedly.
Mistakes Can Seriously Reduce Portfolio Value Over Time
Common mistakes can add up. Ultimately they diminish the value of your portfolio. If you can learn what the most common mistakes are and how to avoid them, you can begin reducing your error rate and improving your overall success.
Could You Be Confusing Income Needs With Cash Flow Needs?
A fairly common mistake many investors make, particularly those planning for retirement, is confusing income needs with cash flow needs. Income and cash flow are not the same thing.
Put simply, cash flow is how much money you need for living expenses and other personal uses of cash. Income, however, is the amount of dividends and interest a portfolio earns that, in the case of a taxable account, you will pay current income taxes on.
It's a crucial difference, because the way you generate income can have a tangible effect on your portfolio growth, as well as on the taxes you pay, both of which impact your ability to get cash flows to cover your living expenses.
"Income" Isn't the Only Way to Get "Cash Flow"
It's a mistake for investors to think they should get the cash flow they need solely from income and never sell stocks or touch principal. This is an emotional bias that for many simply cannot be overcome, but can impact overall performance. Instead, investors should focus on total after-tax return.
For example, selling stock to meet income needs can allow you to stay fully invested and create "homegrown" dividends by selling selected securities. When compared with some dividends, as well as with interest from fixed income, selling stock may offer tax advantages because the transaction might be taxed at the lower long-term capital gains rate rather than at your marginal rate. And, harvesting losses can also lower overall tax liability.
The chart below shows how large the potential after-tax difference could be when cash is generated from interest income compared to selling stock with long-term capital gains.
* Actual results will vary. The differences between interest income and long-term capital gains tax rates depends on individual circumstances. No assurances can be made regarding gains. Investing in securities involves the risk of loss.