Tailgating, cooler weather and a variety of different offenses are here with the onset of the fall and football season. When watching football this weekend you will see a variety of football offenses like pro style, option, spread, pistol etc. You get where I am going with this topic. The winning teams are usually the team that is executing its game plan with discipline. The winning team is usually the one that is better at blocking and tackling. Is that any different than investing?
Investing today requires an enormous amount of discipline. Let’s take a quick look at the current landscape. You have an accommodative policy from the Federal Reserve i.e. a lot of cash everywhere with record low interest rates leading many to resort to alternative investments. Equity investments have grinded higher and many question that they have gone too far. So the meek and mild investment management companies feel that they have to offer you something different; misdirection; a better solution or so it would seem a better offense. When my favorite football team had a coaching change many would ask me “Scott, do you like the new hire and his new offense?” My answer is very abrupt; I will let you know after we have some results. I believe investors feel the same way.
Alternative Investments have their place as do different football offenses. Some of these investments work better in differing market cycles and some temper volatility. Similar football offenses work better with a running or passing quarterback. What I will tell you is that when building an investment portfolio you have to ask yourself 3 important questions.
- Will this investment give me a reasonable real return after inflation, taxes and considering my risk tolerance? After reviewing many different scenarios for our portfolios what I have come to determine is that, after the fees, many alternative investments tend to have neutral to negative returns. This is not acceptable to my team and my clients. If you know that the defense is prepared for a passing play you may want to audible to a different plan. Many of the so called solutions to our current investing environment are likely losing strategies before they even start. Let’s avoid that play in our book.
- Does this investment meet my cash flow needs? Maybe this is a more overall portfolio question. However in today’s environment of low interest rates, clients’ desire cash flow. If the portfolio doesn’t meet the cash flow needs it is simply not a success. It is not easy to generate cash flow with interest rates at record lows. However running a play in the direction of a stout defense is sure to have pain. Many clients from competing firms will complain to us that if you have tempered volatility and no return we still cannot meet our goal. Client goals are as important as scoring touchdowns.
- Do you understand what you are investing in? You cannot really be on both sides of a trade. Many alternative strategies are so complex that I am not sure anyone completely understands them. I have found that level of complexity to be unnecessary. So understanding what you are investing in will give you the necessary patience to being a better investor. Proper education and knowledge of your investment will allow you to understand the different movements of the portfolio thus allowing you the patience to see it through.
Sounds simple doesn’t it? The fact is that being disciplined at blocking and tackling will win football games as in managing your investment portfolio. We hope that you have a great fall watching your favorite team with your friends, family and opponents. Here at Nabell Winslow Investments we are disciplined in the fundamentals of investing and will be focusing on blocking and tackling.
Scott A. Winslow, ChFC