While most financial news reports focus almost entirely on the equity market, the real value in a retirement portfolio lies in its diversification. That’s because Newton’s third law relates to investing as seamlessly as it applies to motion. What goes up, must come down. For this reason, diversification remains a critical component of any investment plan, even during a bull market. Diversification adds two key layers to a portfolio; it increases the opportunity for profit and reduces the chances of loss. It may seem counterintuitive to dilute the resources you can direct to a rising equity, but what happens when that stock price falls? The best defense against inevitable downsides in the equity markets is exposure to multiple asset classes, each with unique returns, risks, and correlations to one another. We like to include dividend stocks in our diversified portfolios because they add an income source that transcends the stock market. Whether a dividend stock is currently in a rising trend or a falling trend, the dividend payment per share never changes. Having this kind of reliable income source as a portion of your investment portfolio allows you more freedom to take risks in other asset classes. We also like to diversify across sectors within the market. The overall portfolio retains its value because while one sector may be falling, another sector may be rising. We saw this just recently when, after the election, Technology and traditional “growth” stocks fell while the Materials sector and traditional “value” stocks gained ground. Due to the portfolio’s diversification among all the sectors, the rise in Materials offset the drawdown in Technology. Additionally, we use exchange traded funds (ETFs), which offer the diversification of mutual funds with the agility of stocks, all for a relatively low cost. The judicious selection of all these elements leads to a well-balanced portfolio positioned for the long term goal of making your assets last your whole life.
Seasons change (especially here in Wisconsin); technology rapidly becomes obsolete; the markets go up and down. But, one thing has remained constant in my life since I first launched this business 36 years ago: the relationships I enjoy. My clients become my dearest friends and I take this dual association to heart. We cover finances and goals in our meetings, but we also talk about faith, family, politics and pop culture. Recently, one of my clients brought me a psalm to read that had been very inspirational to her. It touched me then, just as it did when I first read it as a 12-year old first exploring her faith. Psalm 103 reminds us that we are not alone in this world, that we are loved by a God who crowns us with love and compassion. I’m sharing it with you today because I hope, no matter what your faith, you might find it inspiring as well. As many of you know, I designed a course called “the Bible as Literature” for at-risk high school students many years ago. The class proved to be life changing for both the students and their teacher. We learned from each other that the world need not be as scary or lonely as we may have thought. Psalm 103 also inspired me to accept an invitation to help found an organization now called Kingdom Advisors. That first year, we had 50 members, all certified financial planners seeking a Biblically-based organization that also was focused on providing excellent financial advice and guidance. Today, Kingdom Advisors has become a global organization. In fact, as I do every year, I will be attending the Kingdom Advisors National Conference in February and I know I’ll return brimming with fresh enthusiasm. If you’d like more information about Kingdom Advisors, check out the scroller on our home page, or click on this link. I hope you’ll find Psalm 103 as… | Read More »