Let’s take a few minutes this month to talk about portfolios and asset allocation. I bet you just thought to yourselves “Wow, what an exciting topic!” Maybe not, but with all the news dominating markets this summer, I think it’s a good opportunity to remind ourselves of some very wise investment rules and strategies.


If you have attended one of our seminars over the years you probably got to meet John & Mary Smart. They began saving and accumulating wealth when they were in their early thirties. Their advisor told them to automatically invest from their checking account each month regardless of the market’s current state. As a young, growing family, there were months where cash would get tight and they would question their rigorous savings plan. One year at the office holiday party, John & Mary found out they were doing it all wrong.


One of Mary’s coworkers had been investing for two years in an offshore, international gem mine company. His money had grown threefold and he was doing much better than John & Mary. A few weeks later at their annual investment portfolio review, John & Mary asked their advisor why they weren’t invested in such a successful investment. Their advisors had them repeat together three little words: “Stay the course!” They were informed that sticking to their diversified and slowly growing investment plan would get them where they needed to be quicker and with greater success than a speculative, foreign gem mining company.


A few years later the couple found themselves in a similar situation. Same person, same party, same lucrative gem mine. Mary’s coworker now had 4 times as much saved as she and John and they left the engagement distraught after only a few cocktails. Again they found themselves repeating those three words “Stay the course!” Their advisor also did something interesting to John & Mary. The market had been performing quite well for the past few years and he took a good proportion of their increased stock holdings, and bought bonds. “Wait”, the couple panicked, “Why are you selling our best performers?” More cunning than your average advisor, their advisor stated “I can’t tell you all my tricks, or you wouldn’t need my services. Now head on home and stay the course.”


Over the next year or so John & Mary began to see something increasingly satisfying about their investments. While they were saving the same amount as always and the stock market was performing no differently, their investments were growing faster and faster. A quick call to their advisor informed them that they were now beyond the point of being “one to one”. What this meant was that there was enough money saved that it was earning more return each year than they were putting in. It was time for a meeting with their advisor to ensure their asset allocation and investment selection was in top shape because their money’s return now had more impact than their saving discipline.


At this meeting, some 15 years into their savings plan John & Mary realized that while they were a long way from meeting their retirement goal, they could see how it was going to be very much achievable. Soon they would go from “one to one” to “two to one” and “three to one”. That year at the holiday party, Mary’s coworker was nowhere to be found. When they asked around the party, the only story that anyone had heard was that the gentlemen had gone off to a far off place with other investors to save his gem mine from a band of headhunters and never heard from again. It’s tragic sometimes to see how tremendous greed can turn into such disastrous endings.


John & Mary certainly learned a lot during their investing years. Some pieces of knowledge came from having a trusted advisor, and others came from simply “Staying the course” and watching their money begin to work more and more for them. Let’s examine some of the lessons that we all might have learned from the tale of John & Mary and how we can use them in our lives.


  • Invest a set amount every month from your bank account.
    1. This is called dollar-cost averaging and ensures you are always buying into the market whether it is high or low. The goings on in Greece and China have opened some opportunities to buy in at a discount, but it doesn’t last forever. The automatic investment feature means the investment is effortless and eventually one never realizes they are doing with less.


  • Diversify your portfolio to have many asset classes and exposures.
    1. Each quarter a certain sector or market will always outperform the rest. By diversifying completely you guarantee yourself some exposure to that certain sector and discipline yourself from trying to chase the next biggest boom.


  • Rebalance your portfolio annually to avoid overexposure in any one economy or sector.
    1. When the stock market booms your 60% stock, 40% bond portfolio might look more like 70% stock, 30% bond. Reset things annually to lock in your winnings, force yourself to buy the underperforming sector when it is affordable, and minimize your exposure to loss during the next economic turndown.


  • Understand investment concepts like the “Rule of 72”, where your money doubles every 7.2 years at 10% return or when you are “one to one”, or your money begins returning more than your annual savings.
    1. These are good concepts to know for every investor. When we understand the “Rule of 72” its easy to see that while it might take a long time to meet your goal, it is very likely going to be achieved.
    2. Understanding when you are “one to one” means your return is more important than your savings.   Don’t go beyond this point without making sure your assets are positioned in the most efficient manner possible


  • Listen when a neighbor, business associate, or investment advisor says to ‘Stay the course.”
    1. We tell children, new employees, and students to take their time, make the best choices possible, and remain committed. Your investment success will require all the same disciplines in order to meet your goals successfully.


In summary for all future investors, current investors, and lifelong investors reading this month I have this tip. Be reasonable, prudent, selective, and practical in selecting your investment plan and products. Careful research, ongoing patience, and an open dialogue with your investment advisor will make you all the wiser and your pockets all the greener. This ultimately will achieve your goals, appease your dreams, and help to make you prosperous!