Investment portfolio management is very much an “art” and not so much a “science”. Some managers prefer to find stocks of very good companies, with high quality management, and a relatively low market price. Then they buy the stock of that company and hold it for many years. Mutual fund managers tend to follow this strategy. Some fund managers are better than others. Finding those special fund managers is an important component of a successful investment portfolio.
Comments and Guidelines – Managing your Investments
·Market volatility today requires much more that a passive buy-and-hold strategy. Today, it is important to actively manage your investments:
·There are times when it is important to liquidate some or all of your stocks and mutual funds, and stand aside while the market falls.
·Volatility must be managed in every portfolio. Typically well balanced and correlated investment portfolios will have significant amounts of fixed income investments including interest bearing securities of very high quality – not bond funds.
·Most of the HighDesert managed investment portfolios will contain between 30% and 50% fixed income.
·When designing a portfolio, it is important to include a balanced measure of Large and Small Cap Growth and Value stocks, as well as some International Equities.
·A single, well managed stock portfolio, consisting of perhaps 30 different company stocks, cannot be designed or managed to maintain low volatility, as the stock market goes up and down.
·Only a mutual fund portfolio can provide enough different companies in the portfolio so as to take advantage of the academic research about the optimization of growth yields and portfolio volatility.
·Using sector funds is an unreliable management technique, unless the investor has developed a management model that predicts when to rotate out of one sector into another, as sectors come into favor and go out of favor. Such predictability generally eludes even the best investment managers.
·An investment portfolio needs enough different stocks in the mix so that the design can take advantage of the law of large numbers that validates the academic research – perhaps anywhere from 400 to 1000 different stocks in a single portfolio.
·Choosing the best investment managers can only enhance the performance of the portfolio.
·Many argue that index funds are a better choice than mutual funds. Experience teaches that this is not the case. Some managers consistently outperform their peers, as well as outperform the indexes. These are the fund managers that every investor wants in his or her investment portfolio.
·The goals of investment management are (1)to properly balance and correlate the investments so that they complement each other; (2) to choose the best investment managers – managers who consistently outperform their peers - and, finally, (3) to be invested when the stock market is increasing in value and to be out of the stock market when the economy is slowing.
A buy-and-hold investment strategy will only cause considerable volatility in your investment portfolio and will likely accrue significant losses rather than profits (particularly when the investor is near or in retirement). Once an investor enters a withdrawal period such as during retirement, it is very important to maintain a stable and predictable value in the portfolio. No longer can that investment portfolio sit and wait for the market to recover from a short or intermediate term period of losses.
For managers of foundation money, and of monies that are committed to specific withdrawals, stable, predictable growth is very important. Volatility in the portfolio will only cause loss of principal – capital that is so difficult to accumulate and which so many others rely upon for support.
In summary, successful investment management limits volatility, maximizes yield, and is out of the stock market when the general market is losing value.
High Desert Investment Advisors 4801 Lang NE, Suite 110, Albuquerque NM 505-797-2644 or 505-469-3467
Serving Your Personal Investment Needs Since 2003
Information provided herein should not be considered financial advice. Please speak with your investment advisor.
High Desert Investment Advisors may transact business only in states in which it is registered, or in which it is excluded or exempted from registration. High Desert Investment Advisors is currently registered in the State of New Mexico, and has a de minimus exemption to transact business in other states.
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