Tend Your Investment Portfolio with Care

SMART INSIGHTS FROM PROFESSIONAL ADVISERS

For Every Investment, There Is a Season, So Tend Your Portfolio with Care

Planting, fertilizing and pruning are all important parts of successful gardening, and these concepts apply aptly to investing and saving for retirement, too.

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When I was a boy, working with my mother in her flower gardens helped shape my appreciation for how the different seasons dictate growth.

SEE ALSO: Is 4% Withdrawal Rate Still a Good Retirement Rule of Thumb?

As the weather changed in Cincinnati — from brutal winter to beautiful spring to blazing hot summer to lovely fall — the flower gardens changed with it. The tulips bloomed first and then faded, and then the roses took their turn showing off. In the spring, they were just sticks, bland and brown, but in the summer they flourished. And then, in the fall, it was time for the mums to take over.

As a kid, I couldn’t understand why everything didn’t bloom at the same time — and keep blooming until it snowed. But, of course, I eventually learned that each flower thrives under different conditions. And my mom, Connie, had a purposeful plan; she planted and pruned and kept her beautiful gardens prospering, assuring her prized flowers would shine throughout the growing seasons.

Of course, purposeful planning isn’t just for gardeners. Savers who want to grow their money for retirement can benefit from patiently nurturing a diverse group of investments in their portfolio.

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Your investment garden

Take the six main asset classes we use with our clients: U.S. equities, international equities, fixed income, currencies, commodities and cash. Each has a place in a portfolio, but they won’t all shine at once. There are times when it makes sense to overweight certain assets and underweight — or cut back — on others.

For the past several years my firm has been overweighting the U.S. markets and underweighting bonds and commodities. It has been a great time to own large-cap equities (stocks that generally have a market capitalization of $10 billion or more). With a record-setting bull market, and the S&P 500 and Dow Jones Industrial Average near their all-time highs, it makes sense that these investments have been performing well. In response, many investors have been overweighting U.S. equities and trimming way back on commodities, which have not been doing well for a while. That makes sense, too.

But the season will change, and winter will come. Remember 2008? Cash was king! The large-cap value sector was in horrible shape. So, commodities and currency held a much larger position in our clients' portfolios as we reduced exposure to the U.S. and international markets through that turbulent cycle.

However, coming out of the recession, mid- and small-caps, commodities and currencies did well. With proper tending, those investments came to the forefront of many portfolios. Those who were still sitting in cash were looking at a market that was flourishing, and they had a flower garden without any plants. For many, it turned into an unfortunate mess.

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Fixed income is another portfolio category that requires attention from time to time. It isn’t as showy as the other asset classes, but it’s a critical piece of a retirement income plan. So, what’s an investor to do about bonds in a rising interest rate environment? You don’t pull out those investments and throw them away — but maybe you trim them back. Fixed-income investors may find they’re better off switching their longer-dated investments for those with a shorter duration, or they may want to consider something like Treasury Inflation-Protected Securities (TIPS).

See Also: What's Your Investment Return? Setting Expectations for Your Stock and Bond Portfolio

Nurturing your garden

I’ve yet to meet a successful gardener who takes a set-it-and-forget-it attitude toward what’s happening in his or her yard. Who would plant a seed and never water it or watch it grow? Those who don’t pay attention risk waking up to something pretty ugly out there.

Yet, that’s the kind of buy-and-hold, set it and forget it style that some portfolio proponents are asking investors to take: Pick a fund, stock or ETF and expect a robust retirement in 20 or 30 years. The question one must ask is: What happens when this investment is out of favor? Do you have a garden full of rose bushes in January?

Most investors will want to avoid the purest forms of market timing. Even financial professionals with sophisticated tools designed to analyze every market factor — and do it without emotion — can find it difficult to forecast what will happen and when. But using technical analysis, there are some strategic moves investors and their advisers can make — putting more emphasis on particular assets when it makes sense — to prepare for what’s to come. In other words, tending to their investment gardens!

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It’s important to keep the diversity in your portfolio and to manage everything with care, knowing someday one type of investment could be blooming when nothing else is. (If you hear the Byrds singing in your head right now — “To everything (turn, turn, turn) there is a season” — you get the idea.)

Investments need to ebb and flow with the market. And investors should have a plan — to underweight and overweight, trim and highlight — in an ongoing effort to see their portfolio prosper.

Just like Connie with her flower gardens, you can make sure you always have something blooming to enjoy the sweet smells of solid returns for years to come.

See Also: How Dividend-Paying Stocks May Help Boost Retirement Income

Kim Franke-Folstad contributed to this article.

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Investment advisory services offered only by duly registered individuals through AE Wealth Management LLC (AEWM). AEWM and Olson & Wilson Private Capital are not affiliated companies. Investing involves risk, including the potential loss of principal. Neither the firm nor its agents or representatives may give tax advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 180075

Joseph R. Wilson III is a partner and co-founder of Ohio-based Olson & Wilson Private Capital (www.owprivatecapital.com). An Accredited Asset Management Specialist, he has passed the Series 7, 31 and 66 securities exams and holds life and health insurance licenses.

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