Portfolio construction and monitoring was easy in the past, right? Well, no but there were many fewer
tools to offer the regular and sophisticated investor. Today there are literally tens of thousands of ways
to set up your basic portfolio.
The basic premise of the construction still is how much do I want to own (equity) versus how much do I want to lend? (bonds)
Now you can add in:
1) Exchange traded Funds: Do I want to mimic a sector of the market rather than owning or lending anything specific?
2) Short selling: Do I want to bet against a sector, company, market?
3) Real Estate Investment Trust or direct investment: Do I want to own real estate or invest in a company that directly owns real estate?
a) Do I want that real estate to be liquid or non-liquid?
4) Private Placement: Do I want a private program, that is sometimes transparent or do I want a public, always- transparent program?
5) Digital currency AND cryptocurrency: Do I want to own a currency that does not actually exist?
a) Do I want to own currencies from different countries?
6) Antiques and collectibles: Do I want to own a tangible item for the intention of re-selling it?
7) ESG Criteria: Do I want to have an overlay of environmental, moral, ethical, religious standards?
Each of the above areas and their related sectors comes with varying risks and rates of returns. The combination of risk and return to get the highest return within a defined level of risk is called the Efficient Frontier.
People who invest will do so on their own or they will utilize professionals. You can be successful either way. You have time and money to spend on this. Those that DIY investing will spend more time than money on the build of a portfolio. Those that hire will spend more money than time on the build of their portfolio. The ongoing management and oversight will also take time or money. If you DIY or a professional then you will need to:
1) build the portfolio;
2) monitor towards the above-mentioned Efficient Frontier;
3) understand and track benchmarks towards performance;
4) Understand the difference between the rate of return and risk you need to take versus the rate of return and risk one wants to take;
5) understand tax implications;
6) understand cash-flow needs;
7) understand legal access in case one becomes sick or dies;
Even without COVID you can see that investing is really complicated. Because of COVID you now may be working from home, not working, home-schooling children, have become disabled to the point you need extra care, and/or a loved one has died. How do these issues effect your ability to build and maintain a proper portfolio?
Because of the aforementioned issues surrounding COVID you may be spending more time monitoring your investment portfolio. When monitoring these things did you notice:
1) The worst time to sell was during the pandemic? The best time to buy has been at anytime you can. The market continues to go up. The market will take another dive. If you are still preparing for the for your own financial independence the “dips” are when the market goes on sale.
2) The market on a day-to-day basis is emotional, long term it is logical. Warren Buffett says that when people are fearful, be greedy and when people are greedy be fearful. It takes a long time for the majority of people to be greedy but only an instant for them to become fearful. Buying when markets are down is the best thing you can do while building up your portfolio.
3) Your emergency account dwindling? You should have available to you 3 to 6 months’ worth of expenses during your working days, available to you in cash at all times. At retirement we recommend having 1 to 2 years’ worth of cash available to you. Why?- When not working you need time for your portfolio to recover after the above mentioned “dip”.
Does climate change affect our portfolio?
In short, yes. The longer answer is that climate change can wreak havoc on supply chains, access to goods, the completion of services and the demand for a service or product. This creates booms and busts and because climate change can create widespread events it could derail small to large organizations with the cost factor of clean-up, if the event strikes at a bottleneck point for the organization. All of these items are affecting your portfolio today and into the future.
Free investment advice
We are now getting more information than ever from Google, the blogs and sites that deal with investing. However, these online sites cannot know the full you, your family, your needs or your wants. The “free” online sites are only free to get you to access them so that they can get access to the information you provide them. This information can then be sold to other parties. The pay sites can help in very specific areas or are limited in the scope they can provide. You then need to understand what they don’t do well and either it find out your self how to fix it yourself (more time and even less expertise) or spend money (more expertise and more money). You need to be able to weigh the value between time and money. Ask yourself the questions:
1) Do I know the right questions to ask?
2) Do I know how to interpret an answer I receive for my specific issue(s)?
3) Do I have the ability to implement myself or do I need expertise?
The world we live in is somewhat unchanging, but the technology and communications that we utilize have changed dramatically in even the last ten years. These changes are only going to accelerate and with major disruptions, like COVID and climate happenings, and it will only become more imperative to have qualified trusted people to oversee your financial life. This is where the Personal CFO comes in.
This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Commonwealth Financial Network® nor Best Times Financial provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.