Risk is a scary word to most people. However, just as taking too much risk can cause you great heartache, so can taking too little risk. Let us begin by first defining “risk”, and then identifying some different types of risk.
Broadly defined, and in very general terms, risk is: “A situation involving exposure to danger. Exposing (someone or something valued) to danger, harm, or loss.” With this having been established, let’s look at some potential risks associated with investing.
We have systematic risk, and then we have unsystematic risk. Systematic risk, sometimes referred to as market risk, or volatility, is the risk associated with an entire market. Systematic risk can be “managed”, or mitigated in part, by adding different asset classes into a portfolio: Asset classes that have a negative or minimal correlation to one another. Unsystematic risk is company or industry pecific risk. Unsystematic risk can be reduced by simply adding to the number of holdings in a portfolio.
Breaking down risk a bit further, we can identify specific types of risk that fall either on the Systematic risk side, or the Unsystematic risk side. Here are just a few!
Another risk that I would like to discuss with you, is the risk of not taking enough risk. I know it may sound counter-intuitive, but it is a real concern. With folks living longer into retirement, many into their 90’s, the possibility exists, of a retiree outliving his / her assets.
When approaching retirement, it is a good idea to consider meeting with an experienced Financial Advisor, in order to help you determine exactly how much income you will need in retirement.A good advisor will ask you detailed questions about your entire financial picture. A good advisor will listen more than he / she talks. Based on your responses to those questions, a good advisor will determine a suitable investment mix that is appropriate for your personal risk tolerance and time horizon; and that will serve to meet your long term investment and income needs.
Although past performance is no guarantee of future results, history has shown us that there is, indeed, a connection between risk and returns. In simple terms, the lower the risk, the lower the potential returns. The higher the risk, the higher the potential return / reward. It is this principle that drives the movement of the markets.
So the long and short of it, (pardon the pun) is; don’t take too much risk, but don’t get caught in the trap of taking too little risk either.
Another busy summer has come to an end in Cody Country and things are finally beginning to quiet down once again. Now is a good time to devote some extra attention to things that perhaps you have been ignoring, like your investment portfolio(s).
What does it mean to be proactive, when it comes to investing?
Being proactive requires diligence. At O’Donnell Wealth Management, we are constantly assessing economic trends, individual security and broad market technical indicators and fundamentals, geo-politics, interest rates and more. The markets are forward looking. The markets react now, to what they perceive to be the future, to a potential future. Therefore, Staying abreast of this information allows us to make informed decisions when managing our client’s portfolios. Portfolio management is both interesting and challenging because the markets are changing constantly, thereby always creating both risk and opportunity.
It is very important to understand what you own. I spend the extra time to provide my clients with education. One investment can act very differently from another to changing market conditions.
For example: The Federal Reserve and Federal Open Market Committee continue to signal their bias towards higher interest rates. This will undoubtedly have an effect on bonds and bond funds. Bond values have an inverse relationship with interest rates. As interest rates rise, the value of existing bonds in the market fall. This effect is most pronounced with bonds having long maturity dates. One way to be proactive might be to reduce your exposure to bonds with long maturities or bond funds that hold a significant amount of long bonds.
As a portfolio manager, I make regular asset allocation changes in my client’s portfolios as market conditions begin to signal a change. Asset allocation refers to the distribution of investments into different assets classes such as stocks, bonds, commodities, real estate etc. These can been broken down even more into sub-classes such as small cap, mid-cap and large cap stocks.
Managing the downside is very important. Having a disciplined approach to dealing with losses is very important. In the money management business we call this a “sell discipline”. Having a sell discipline is proactive investing. Take this simple example: If you own 100 shares of XYZ company at $100 a share, nd it goes down 50%, to $50 per share, how much does XYZ company need to go up before you are at break even again? The answer is 100%. So, although your investment went down 50%, it now needs to go up 100% before you begin to make a profit.
There is nothing wrong with being a do it yourself investor, so long as you know what you are doing, you have the time to do it, you want to do it and you have the emotional discipline to do it successfully.
As a professional portfolio manager, I have accepted many clients over the years that had enough knowledge to manage their own money, but simply preferred not to. Perhaps they had a medical practice, or owned a business and simply couldn’t dedicate the time to do it right. Maybe they realized that they had a tendency to succumb, all too often, to the emotions of greed and fear which can cause catastrophic financial decisions. Individual investors often get caught selling at the bottom of a market downturn, or buying at the top of an overvalued market. A professional money manager must be able to remove emotion from the decision making process when buying or selling investments.
Regular communication is another form of being proactive. We communicate with our clients regularly, not just to review their portfolios, but to stay informed about changes in their lives that may impact the way we manage their portfolio. It is important to plan for anticipated future events such as retirement, or a large expense such as a wedding or the purchase of car. It is also important to respond to life’s unexpected events and make the proper changes or adjustments to your investment portfolio(s), accordingly.
A successful Cody based investment management and financial advisory firm recently added another investment professional to their firm. Shana Estes joined O’Donnell Wealth Management on September 25 as a Financial Advisor.
I had the sincere pleasure of spending some quality time with Financial Advisor Shana, President Stephen O’Donnell Sr. and Office Manager Sue Jean O’Donnell at their Sheridan Avenue offices. I was very impressed with all of their rich careers and backgrounds and would like to share with you what I learned.
In December 2004 at the very young and ambitious age of 20, Shana started at Ameritrade as a temporary client service representative. Shortly after completing her training, she was rolled over to a full time associate. By the summer of 2005, just before she turned 21, she became a licensed broker. Within a month after starting her role as a general stockbroker, she was promoted to the Mutual Fund and Bond Desk. Not long after, Ameritrade merged with TD Waterhouse to become TD Ameritrade. The Bond portion of her job moved to a sales oriented team in Texas, where the Mutual Fund team merged with the Retirement Account team. Shana spent the next few years becoming a subject matter expert for retirement accounts along with traning new associates.
Although her career was skyrocketing, Shana took a leave of absence in 2011 to take care of her son Duncan's childhood health issues. Since it is not in her nature to sit still for long, Ms. Estes ran a photography (one of her passions) business out of her home, participated in an artists' co-op, taught ballroom dancing and published a book. Talk about multi-talented!
After Duncan’s health concerns were stabilized, Shana returned to TD Ameritrade in 2014. She resumed her position as a Retirement Accounts specialist and set out to lead and train new associates. For two years Shana developed training material and internal content to help other associates better serve their clients. Her crowning achievement was creating training for the rigorous requirements of the PPA (Pension Protection Act) restatement of all employer sponsored retirement plans, which occurs every six years. This content allowed the client service team to be better prepared assist plan administrators with the intricacies of the paperwork involved. In July 2016 she took a supervisor's position and obtained her principal license.
Fortunately for us Shana Estes left TD Ameritrade in July 2017 and moved to Cody, WY. Since then she and her son Duncan have been settling in and getting to know the town. Duncan attends Livingston Elementary and Shana is looking forward to furthering her high achieving career as a Financial Advisor with O'Donnell Wealth Management.
“I am honored to have Shana a part of our team. Her extensive financial industry experience, particularly that with retirement plans and bond trading will serve our clients well here at O’Donnell Wealth Management.” - Stephen P. O’Donnell Sr., Founder and President, O’Donnell Wealth Management
Some of us in Cody know Steve as a law man due to his service to our community and his contributions to law enforcement that go back nearly a quarter of a century.
I have learned however, and would like to emphasize, that his service of guarding and protecting our community just barely scratches the surface of who he is. I would like to share a few details of his diverse experience, personal strength and extensive knowledge in other areas – specifically the field of investment management.
Almost two decades ago Steve graduated from a two year training and licensing program at Merrill Lynch in just 11 months. He raised $22,000,000 in client assets while providing investment advice to high net worth private clients. Talk about an auspicious beginning to a career! In 2000 Steve was recruited by Smith Barney as a Second Vice President. During his 7 years at Smith Barney he worked as a Branch Manager and was named the number one performing portfolio manager in a complex of 5 offices, raising over $50,000,000 in client assets. In 2007 Steve was recruited by Morgan Stanley as a Vice President and Portfolio Manager. In the middle of the financial crisis of 2009 Steve made the bold move of going out on his own and founded O’Donnell and Associates, an independent asset management and financial advisory practice. He and his team provided full service asset management, retirement planning and estate planning services to a broad range of private and institutional clients.
After 17 years of living and working in New York, Steve Sr. and his wife of 30 years, Sue Jean, decided to return home to Wyoming in 2014. In 2015 they founded the investment firm of O’Donnell Wealth Management right here in Cody, Wyoming. Their elegant investment office sits at the heart of beautiful downtown Cody at 1306 Sheridan Avenue.
Not even four months after founding O’Donnell Wealth Management, Steve’s sister and nephew were murdered in a heinous act of domestic violence on February 9, 2016. Devastated by the murders and unable to continue on, Steve’s father took his own life on May 31, 2017.
"We forge on, we keep moving forward. Family is everything. It is important for families to stick together, in good times and bad and to work through any differences that may arise throughout the years. Life is short. My whole family lives here in Cody, in Wyoming, in God’s Country, the greatest State in the nation. I have too many people depending on me to withdrawal, to shut down, to give up. I am accountable to God, to my family, to my clients and to the community.” - Stephan P. O'Donnell Sr.
I can honestly say that I feel fortunate to have them back as neighbors.Please stop in and feel free to let them know that you do too. For investment management, financial planning, and estate planning services, please call: 307-586-4279 to et an appointment or simply drop by the office on Sheridan Avenue.
One of the more difficult responsibilities of being a business owner is managing a retirement plan for yourself and your employees. In fact, many business owners neglect or forego it all together. The daunting task of choosing the plan that best fits your needs, managing contributions and understanding IRS tax codes can be overwhelming. Some things you should know about the world of employer sponsored retirement plans include:
While one of the more commonly used plan types, a 401(k) may not be the best fit for you and your employees. There are many other options, such as, SEP and Simple IRAs, Solo and Roth 401(k)s, etc. Each with their own income barriers, contribution limits, tax benefits and flexibility for employee participation requirements.
Contributing to an employer sponsored retirement plan allows you to both provide your employees with added benefit, while removing a portion of your taxable income, lowering your tax liabilities.
Although many business owners act as their own Plan Administrators for their retirement plan, there are Third Party Administrators out there who are well versed with the intricacies of running various plans. They can navigate the, sometimes, confusing paperwork required to create your plan, as well as, serve the growing needs of your participants.
There are many dates, such as, contribution deadlines and Plan Restatement* that must be followed.
*The Pension Protection Act is public legislation that was enacted to protect retirement accounts and to hold companies that have underfunded existing pension accounts accountable. In 2006, the President signed an amendment to the original PPA in an effort to reform the pension system. The Pension Protection Act requires that all Qualified Retirement Plans restate the plan once every 6 years, starting in 2009/2010, among other legislation. After the most recent plan restatement, many plans are left out of compliance and in danger of losing their tax-sheltered status.
“Retirement Planning for Businesses” cont… (2)
Retirement plans offer a way for you to grow your money on a tax deferred basis. This means that while you are putting away money, your investment can grow without being taxed immediately. Ideally, taxes will be levied as you withdraw from the plan in retirement, when your tax bracket is lower.
This is where a Registered Financial Advisor can come in. As a business owner, you are already wearing many hats. Portfolio management does not have to be one of them.
The author, Shana Estes, is a Financial Advisor with O’Donnell Wealth Management, a financial planning and asset management firm located at 1306 Sheridan Avenue in beautiful Cody, Wyoming. Shana has over 10 years of experience, having worked as a retirement account specialist for TD Ameritrade. For a no cost, no obligation, initial consultation, call 307-586-4279, email: firstname.lastname@example.org, or simply stop by the office Monday through Friday.