The Planner's Perspective: It's Not Always About Hitting A Home Run

By Paul Morrone, CFP®, CPA/PFS, MSA

The average investor has one simple goal – grow the value of the dollars they invest so they are worth more in the future than they are today. While the objective may be simple, the overwhelming amount of information available to individuals can be paralyzing. Furthermore, technology has enabled access to a multitude of investment products and services, many of which may be unsuitable or downright detrimental to the person purchasing them. It’s the main reason professionals have a job and reinforces the need for consistency between your investment plan and overall financial plan.

The reality is that investors should be looking for investments that are going to keep them out of trouble, not make them the next Warren Buffett. With complex and esoteric investments continuing to proliferate the market, the opportunity for a major mistake is greater than it ever was. Emotionally, it’s hard not to get caught up in the thought of becoming the next cannabis millionaire or finding the penny stock that rallies 60,000%. Unfortunately for most, it’s a pipe dream at best. Even professionals cannot consistently pick winners, with even the most successful money managers unable to sustain top-tier performance year-after-year. The level of difficulty is impossible to quantify, but its safe to say that if it was easy, everyone would be doing it.  

Selecting investments involves both quantitative and qualitative analyses that should account for the things commonly described in broad based articles such as risk tolerance, diversification, etc. However, a true investment plan that its tailored to the needs of the investor will go a step further and include considerations to mitigate the impact of taxes, investment fees, duplicative holdings and correlation between holdings, among other risks. Additionally, volatility targets, investment objective (i.e. growth vs income), type of investments, and investment strategy all play an integral role in how to best create a portfolio to help you achieve your long-term financial goals. While there is no guarantee that a more thorough analysis and optimized portfolio will yield a higher bottom line return during any given period, it should help to ensure consistency with your overall financial plan and provide you with the investment experience you need over the long-term.

A good planner will explain the long-term ramifications of maintaining an investment plan but should also be focusing on an even more important attribute of your plan: the spending/savings plan. We can exert control over this aspect of our financial life with a much greater degree of precision and certainty than the performance of our investments. It’s no secret that returns do have a huge impact in your portfolio and net worth over the long-term, however, the magnitude of those returns is almost entirely out of all our control. The best managers can’t generate positive returns out of thin air, which is why it is important not to go all-in on a moonshot investment. Those that avoid temptation and put emotions aside have long been rewarded for their dedication and patience.

_{Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.}