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.
Know What You Own
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.
Have a Sell Discipline
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.
Understand Yourself and Your Limitations
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.
The author, Stephen P. O’Donnell Sr., is President of O’Donnell Wealth Management, a financial planning and asset management firm located at 1306 Sheridan Avenue in beautiful Cody, Wyoming. Steve has 18 years of experience, having worked as a portfolio manager for some of the largest firms on Wall Street. For a no cost, no obligation, initial consultation, call 307-586-4279, email, or simply stop by the office Monday through Friday.
Investment Advisory Services Offered Through Saxony Capital Management, LLC. Securities Offered Through Saxony Securities, Inc. Member FINRA/SIPC.