Broker Check

To Everything, a Season

May 24, 2017

“To everything turn, turn, turn,

there is a season turn, turn, turn

and a time to every purpose under heaven”

You may already recognize the above quote, which is from one of my favorite folk songs, the Birds Turn! Turn! Turn! Moreover, it is my favorite song lyric pertaining to saving and investing for the future. I’ll explain why in a moment but first I want to acknowledge something.

The number of things we can put our money into, with the hopes that we will get some kind of return, can seem bewildering. Stocks, bonds, mutual funds, ETF’s, insurance, real estate, private placements, investment trusts, IPO’s, CD’s, gold, silver, other commodities, antiques, art, coins, memorabilia and on and on. Within each of these financial instruments there often seems an unlimited number of options. It’s no wonder that people, feeling overwhelmed, sometimes table their critical planning goals for another day. 

There are as many reasons for choosing or not choosing these financial vehicles as there are vehicles, maybe more. We may choose certain investments because we feel that we understand them well. We may avoid certain others because we feel that we don’t. 

We may have had a good experience in one type of investment and a bad experience in another. Perhaps, we’ve “heard good things” about a certain type of savings plan or know someone who has done well with a particular strategy. We might feel that “If they’ve done well, perhaps I will too.”

People often ask me what I think the best investment strategies are at the current time and I frequently reply, “Ask me again ten years from now and I’ll have a better idea.” This is because, indeed, we can only know the perfect course of action in hindsight. The asset class or classes that will perform best in the coming years is anyone’s guess. Therefore, we should do our best to own a portion of several complimentary asset classes. When put together, I call what they comprise a financial mosaic. 

All the investment and savings products listed above may well experience their periods of success and periods of poor performance, over time. To everything there is a season. None of the aforementioned places to put our money are strong or weak in a vacuum. They are merely strong or weak at different points within the context of a given economic cycle. Owing to this, some people feel that a balanced strategy, including asset classes that are negatively correlated and non-correlated, might provide a solid return, with relatively minimal (though not zero) volatility. 

But you may ask, “what exactly are we balancing? “ This is a great question. Many investment portfolios I see focus heavily on what has become known simply as “the market.” The market is most typically represented by the S&P 500 or the Dow Jones Industrial average indexes. These indexes present averages of the stock prices of some of the largest companies in the country and it is often thought that their rise or fall is representative of our country’s financial status, at any given moment in time.

Market assets can be owned in a number of ways, such as individual stocks, mutual funds, which is just a basket of stocks selected by a money manager, or through index funds designed to mirror an index like the S&P 500. 

To balance the above-mentioned investments, if we have them, we might choose negatively correlated and/or non-correlated assets. These might be asset classes like bonds, insurance, gold, commodities, etc. that might move higher independent of the stock market (non-correlated) or as a result of the stock market moving lower (negatively correlated.)

The financial mosaic approach, which systematizes the use of opposing financial forces within a portfolio, might help to create two prominent advantages. First and most obviously, if the market crashes like it did in 2008, the hope is that there will be a portion of your mosaic which will lose less value or may even move higher over that period of time. 

Second, and perhaps less obvious, is that some portion of those negatively correlated and non-correlated assets can be used to invest in the market after it has moved lower. This could create what in hindsight may be an excellent entry point into the stock market. Plainly stated, you might have the opportunity to buy the market when it is cheaper, relatively speaking. Certainly, any money put into the broad market in 2008, 2009 and 2010 has probably performed admirably.

Past performance is no guarantee of future success, but if we create a financial mosaic that is truly balanced, we can almost look forward to a market dip as the opportunity that it represents. In other words, we can look forward to a sale, rather than living in fear that our portfolio will suddenly be eviscerated by a sharp market downturn.

No strategy or tactic can or will protect you from every single negative financial result. However, creating balance might take the sting out of some of the worst of these circumstances and may even leave you in a position to take advantage of them. 

To create balance where it does not exist you must take action. You may also consider working with a financial planner that you trust to help. 

Perhaps, you can create a financial mosaic which might help you turn a season of market downturn into a season of sales on your favorite equities. I wonder if the Birds ever considered that.

Scott R. McGimpsey May 16th, 2017

This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy. Neither Summit Brokerage Services Inc. nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm with securities offered through Summit Brokerage Services Inc., Member FINRA, SIPC