Dollars & Sense December 2013

Q. What are your predictions for 2014 and how should I invest?

A. We are all bombarded by all-knowing predictions this time of year and you know what? Most of them are going to be wrong. I’m tired of it and I’ll bet you are too. Instead, I’ll share with you a dozen thoughts on investing that I’ve gleaned over the past three decades.

Know Thyself. Before you invest, you have to really know your goals, needs, wants, concerns, time horizon, tax bracket, tolerance for volatility, preferences and so on. These “objectives” should drive your investment plan.

Allocation is Everything. What you invest in determines your returns and volatility. You need to determine what asset classes are appropriate for you and how to allocate amongst them. Allocation, more than stock-picking, will drive your returns.

Choose your Weapon. Are you going to buy individual stocks – a mutual fund – an index etf – a partnership – or a separate account manager? You need to determine what investment vehicle you will use to build your portfolio according to your allocation plan.

Are you Investing or Fooling Around? Too many people buy 5 stocks and think they’re investing. That’s speculating. The best way to get rich is to buy 5 stocks. It’s also the best way to go broke. Investing involves determining your objectives, setting an appropriate allocation, buying diversified holdings for each asset class, monitoring performance, and adjusting as necessary.

Buy Low (and moving up) and Sell High (and tipping over). It’s too difficult to pick the bottom or top using “gut”; better to wait for an actual turn and invest with the changing trend. The investor graveyard is full of people who tried to pick the bottom and watched their holdings just keep plummeting. Wait for the turn.

Ignore the daily noise by applying a moving-average trend. Daily volatility is confusing and misleading. Apply a long-term moving average trend line to your charts to see the forest for the trees. A 200-day moving average is a reasonable long-term trend line for most people.

Track your Performance. Keep track of your performance – in dollars and in percentages. Monthly brokerage statements do a poor job of performance reporting other than for the current month. Keep a spreadsheet, with at least quarterly figures, that tracks your beginning balance, gains & dividends, any fees or costs, and ending balance.

Compare Apples to Apples. Compare your performance to the appropriate benchmarks. If you have a portfolio of 25% Bonds, 50% US Stocks, and 25% International Stocks, you have to compare your performance to this blend of indexes. Too many people have a “growth” blend, and then compare only to the “S&P500” or “Dow”. This is apples to oranges and inappropriate.

Don’t Pay Too Much. A reasonable cost for investment management is 1% or less – never more. And even if you “do-it-yourself”, be sure your funds don’t charge more than 1% (many do!). There are too many excellent choices (index funds especially) that charge far less than 1%. Remember, you can’t control the market, but you can control your expenses, and they add up.

Make Subtle Moves. If you’ve thought through your objectives, made a reasonable asset allocation plan, and invested in diversified funds, you shouldn’t need to make radical moves in your portfolios. Even if the trends change, make only subtle moves – add a little, sell a little – and trust in your asset allocation to work over time.

Keep Learning. You can never know it all when it comes to investing. Try keeping up by reading – especially the less-biased sources. Consider Morningstar, ValueLine, and Standard & Poor’s websites. Most news is noise – coming from pundits that have something to sell.

Keep it in Perspective. Investing your portfolio is just one aspect of managing your wealth. You can often make bigger differences by managing your household budget, managing your debts, and investing in yourself.

You’ll Make Mistakes – Get Over It. The best investors have all made mistakes along the way. The key is to have a reasonable plan to reduce mistakes in the first place. And when you do make a mistake, identify it quickly, fix it, learn from it, and move on. Investing is a marathon – one step at a time – and pace, pace, pace.

Ryan Investments (RI) is an SEC-registered investment advisory firm based in Aspen, Colorado serving individual investors and non- profits. Our strategy is called “iFoliosTM” – index fund portfolios actively managed for growth and protection. More information is available at www.ryaninvest.com or (970) 429-1100.