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.
When I was a boy, working with my mother in her flower gardens helped shape my appreciation for how the different seasons dictate growth.
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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
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.
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).
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!
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.
Kim Franke-Folstad contributed to this article.
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
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
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.
-
Eight Tips for Surviving the Holidays and Sticking to Your Financial Goals
Use these practical strategies to help you navigate seasonal spending in a less stressful way.
By Kiplinger Advisor Collective Published
-
Retirement Income Strategies for the Long Haul
Crafting a retirement income plan is more important than ever, given our longer lives and uncertain times.
By Coryanne Hicks Published
-
Five Tax Strategies to Help Your Money Last in Retirement
Having a tax strategy is crucial to making your money last. These tax-saving moves can help, whether you're years from retirement or already there.
By Scott M. Dougan, RFC, Investment Adviser Published
-
What Does the Term 'Full Coverage' Really Mean in Insurance?
For starters, there’s no such thing as 'full coverage.' Instead, you should tell your insurer exactly what kind of protection you're looking for and for what.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published
-
How Intrafamily Loans Can Bridge the Education Funding Gap
To avoid triggering federal gift taxes, a family member can lend a student money for education at IRS-set interest rates. Here's what to keep in mind.
By Denise McClain, JD, CPA Published
-
Two Consequential Tax Cases You May Not Have Heard About
The Supreme Court's decisions in these cases create uncertainty about challenging IRS regulations and guidance. Expect more litigation to follow.
By John M. Goralka Published
-
Are You an Estate Planning Procrastinator? Where to Start
Quit putting it off, because it's vital for you and your heirs. From wills and trusts to executors and taxes, here are some essential points to keep in mind.
By Alex Diaz, MBA, CFP® Published
-
Write a Book in One Day and Become a Best-Selling Author!
If that sounds like a scam, that's because it is. Online publishing scams entice wannabe authors with big promises for a big price. How to protect yourself.
By H. Dennis Beaver, Esq. Published
-
How to Sell Your Business With No Regrets
The key to a successful exit: You've got to be prepared. So, start now by maximizing profitability, planning for succession and avoiding the dreaded five D's.
By Nick Guida, Investment Adviser Representative Published
-
The Bare Necessities of Buying Pet Insurance
Pet insurance can help put you at ease over the health of your furry friends. Here's what to look for when shopping around for a policy.
By Joelle Spear, CFP® Published