Financially Speaking
Getting Your Portfolio in Shape: A Summer Guide
As I sit down to write, it’s just before Father’s Day. I was blessed to have had a wonderful dad who taught me about life.
I’m also thankful for the great markets that seem to be hitting record highs on a regular basis.
Many of you may be just starting your summer vacation. You know the excitement your family feels as vacation starts. You pick up the keys for the rental home, or maybe you are lucky enough that your family has a shore house. You unpack your clothes and groceries, and perhaps ice up your favorite beverage. Your senses are alive with the smell of salt air and the sound of crashing waves. You decide to lace up your sneaks and head outdoors. Next, you figure it would be a good idea to go for a run and not a walk. It doesn’t matter that you hadn’t done anything physical for the last year. Maybe running is not the right word, perhaps it is a slow jog. We have all seen that person who hasn’t done anything since last vacation, and wham, it happens. They pull a muscle, and the next day you see them limping along in pain. The only thing they want to do is get back to where they were before vacation. If you are that person, you know you have to stop everything and do what is necessary to get back on the right track.
Well, investing is very similar. There are those who haven’t done anything for the last year or two. It’s as if they were in a bubble and all of a sudden realize that the markets have done well since last fall and interest rates are great. Life gets in the way with exercise and finances. You may not have looked at your investments recently but quickly decide to make changes. Unlike the out-of-shape jogger, you may not know the pain immediately. It may take several months or longer to realize the pain of making changes to your portfolio without doing the proper research.
Similar to stretching, it is important to take some steps prior to making any investment changes. First, review your financial goals. Do they still make sense, or do you need to update them? Are you saving for education for your children or grandchildren, a shore home, or perhaps retirement in 25 years? Understanding your goals allows you to make sure your timelines match up. If your goals are short term, then you don’t want to take risk. Maybe investing in a CD, money market, or a Treasury bill is best, since interest rates are fairly high and you will need the money shortly. If your goal is long term, then certainly equities in your portfolio may be more appropriate.
The next step before making changes to your portfolio is to understand what type of risk-taker you are. Like many people down the shore, you may have several bottles of sunscreen in your beach bag. Some people use a 15 SPF while others may get sunburn with a 30 SPF and need SPF 50. Whether it is investing or sunscreen, everyone is different. Some people can’t sleep at night if they have any chance of losing money. Others sleep very well regardless of market volatility. This is where you have to decide on your risk tolerance. How much risk are you comfortable with to meet your goals?
After defining your goals and deciding your risk tolerance, you need to set a plan in motion. Review your various investments. Are they in one place, making it easier to keep track? You may have a couple of old retirement plans that you need to combine into one IRA. Compare your investment performance to an appropriate benchmark. If you are conservative, you can’t compare your results to the S&P. Are you underperforming? There are several online resources you can use such as Yahoo Finance or Google Finance, where you can check the performance of your mutual funds, ETFs (exchange-traded funds), and individual stocks. Research all of your investments and make sure they fit in with what you are trying to accomplish. Look at additional investments that may help you achieve your goals. You may be thinking that this will take a lot of time. There are some who do not realize their investments are performing poorly until after they have held them for several years. By then it may be too late.
Once you have your investments back on track, you need to set up a time to review them on a regular basis. I’m not talking daily but more like quarterly or semi-annually. Add it to your computer calendar in perpetuity. Maybe it is every June 1 and Dec. 1. Your calendar will automatically add it to your things to do that day. Always keep the time frame you set up.
One thing many people lack when they do their own investing is discipline. We sit down with our clients semi-annually to review their investments and see what changes need to be made, if any. Perhaps something changed in their personal life such as a new job or promotion. Maybe they had a child, or worse, they got divorced. Regular reviews help to see what adjustments have to be made.
Does the 1976 song by ABBA, “Money, Money, Money,” ring true to you? Here are the opening lyrics: “I work all night, I work all day to pay the bills I have to pay. Ain’t it sad? And still there never seems to be a single penny left for me. That’s too bad. In my dreams I have a plan.”
Well, don’t make it a dream, make it a reality.
If you are not the type to do it yourself, then a cost-effective way would be to hire a fee-based financial adviser. Make sure you choose one who is a Certified Financial Planner (CFP®) or Chartered Financial Consultant (ChFC). They should also be an Accredited Investment Fiduciary (AIF®). A fiduciary is someone who manages a person’s money or property for the client’s benefit, not theirs. An independent adviser should provide unbiased advice for their client. An adviser should be able to review your situation and provide you a fee quote before completing any work. If the adviser is going to manage your portfolio, you should know the cost upfront.
Many of us have made financial mistakes in the past. Unless you are retiring tomorrow, there is generally time to correct them. With a little knowledge and some hard work, you should be able to get your finances back in shape. Just like a would-be marathoner, don’t try to make up for it all at once. Do your homework and get your portfolio in shape gradually. Over time, your investments have the potential to be in great shape like you.
Now that you have made the decision to get your portfolio (and yourself) back in shape, grab a chair, your favorite book and beverage, and head to the beach. If you have been inactive, walk, don’t run, and remember the sunscreen. Make it a super summer.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc.. Securities are offered through Commonwealth Financial Network®, member FINRA/SIPC. Fred may be contacted at 800-647-0762, by e-mail at freddunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342.
Advisory services offered through Planning Directions, Inc., a Registered Investment Adviser, are separate and unrelated to Commonwealth.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results.
