Many of our clients have had a financial advisor before coming to Wealthcare Financial Group, Inc., but they were intrigued at how confident we were about accomplishing three key things:
1. Reducing portfolio risk
2. Reducing portfolio fees and expenses
3. Increasing risk-adjusted returns.
All we ask is for a fair opportunity to explain how we plan for this with our client.
First, it is important to understand that a “down market” may not mean the same thing for everyone. At least, it shouldn’t. However, while reviewing client portfolios, we notice that far too many people are positively correlated with respect to the three major indexes: DJIA, S&P 500 and NASDAQ. Therefore, the first step is for us to determine the appropriate asset class diversification based on your risk tolerance, including other very important details about your life, needs and goals. Then, we design a model portfolio that reflects the appropriate weighting within the asset classes that we believe should comprise your portfolio. Managing risk is accomplished through proper asset class diversification and pairing a portfolio with where the economy is in its cycle.
We believe that education is the great equalizer. We educate, plain and simple. We enjoy demystifying the topic of finance through one-on-one or group educational seminars and workshops. In addition, through our blog www.answersaboutwealth.com, we address a variety of topics that people have expressed an interest in learning more about. If you choose Wealthcare Financial Group, Inc. to be your personal finance education partner, our goal is for you to grow in knowledge. Confidence always follows knowledge.
The first rule of investing is to be educated about what you want to invest in BEFORE YOU INVEST! Cryptocurrencies have proven to be very volatile, similar to stocks. There are some unique risks to Bitcoin investing such as liquidity, the potential for cyber-attacks, and not having enough institutional sponsorship to provide a strong marketplace for trading cryptocurrencies.
With that said, we view cryptos as an “alternative investment.” Meaning, it is not prudent to hold a significant percentage of one’s assets in any alternative investment, whether it is a closed-end REIT (Real Estate Investment Trust), gold, oil, a hedge fund, peer-to-peer lending, etc. Alternative investments may offset the performance of the overall portfolio because they tend to not be positively correlated to the stock market. However, we cannot overstate the importance of being diversified.
One thing that the wealthiest families in the world have in common (besides a lot of money) is that they own larger than average life insurance policies, but not for the same reasons many Americans purchase life insurance. Unlike a 401(k)/IRA/Roth, certain types of life insurance policies can be structured to accept initial premium payments (i.e. deposits) that exceed the maximum contribution limits of traditional retirement accounts. A policy such as Index Universal Life (IUL) generally provides tax-deferred growth, interest “crediting” that is based on the performance of the underlying stock market index, protection from a down market, tax-free withdrawals and tax-free death benefit payment to beneficiaries.
Rolling over your 401(k) into an IRA would open up a much larger universe of investment options. Some 401(k) plans have limited investment choices. Why limit yourself when having a strategically diversified portfolio is so vital to protecting your portfolio throughout the various cycles in the market and the economy?
At some level, investing in stocks, mutual funds and exchange traded funds is about owning shares of a publicly traded company. Companies are not necessarily “good” or “bad.” However, they do either make money or they do not. The character of a company is based on those who make decisions within the organization.
Therefore, a “faith-based” portfolio is one that intentionally avoids buying stocks that represent industries such as alcoholic beverages, casinos and gaming, tobacco products, etc. The pro to faith-based investing is that you can own shares of companies that do not represent industries that are inconsistent with your faith. The con of faith-based investing is that by not owning certain securities, you may limit your portfolio to investments that may not perform as well. With faith-based investing, you can still build a portfolio that is diversified. Just know that it might not be as diversified as it could be. Since diversification is correlated with investment performance, then you will have to decide how important diversification is to you.
Our first question is going to be which market has turned sharply downward? All markets (or indexes) are not created equally. The textbook definition of a recession is a significant decline in economic activity spread across the economy, lasting for at least six months. This is usually measured by gross domestic product (GDP), including other economic indicators such as retail sales, income, employment and industrial production and manufacturing. There are also times when a particular sector or industry is experiencing a downturn, but this doesn’t mean that the economy has entered into a recession.
Downturns in the market, whether expected or not, can sometimes present an attractive buying opportunity. It is important to remain somewhat methodical, analytical, and vigilant during a negative period in the market or economy. Being emotional is not helpful! Hopefully, you/your financial advisor were thinking about how your portfolio might perform during a down market when designing and building your portfolio.
Because your portfolio might not be truly diversified. In our experience, many people are diversified in “name” only. In other words, there are multiple positions in their portfolio, e.g. stocks, mutual funds, exchange traded funds, etc. However, when we peel back to onion so to speak by performing a portfolio review & comparative investment analysis, we tend to find that their investments are comprised primarily of large cap stocks. If your portfolio is mostly comprised of large caps, then when the DJIA, S&P 500, or NASDAQ moves up or down, your portfolio is very likely to follow suit. True diversification is more than that. Call us or schedule an appointment and we’ll help you figure it out!
That is why they invented airplanes, RVs, and online meetings! Some clients prefer that we meet with them in person and others prefer that our meetings are held via online video conference or by phone. Everyone is different, therefore, we’re happy to leave that decision up to you.
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