Over the past number of years a few fundamental principles of sound investment management have come into focus. These principles evolved out of the 2000 collapse of the Tech bubble, the 2008/09 market meltdown and the collateral damage suffered by many investors in the aftermath.
Prior to this event many investors would experience above average returns in a particular market sector for a few years and be mesmerized to the point of becoming spectators not investors. They would just admire the “glow” of return and fail to take profits. Reallocation was not always top of mind. Historically, the US market has returned 7.5% – 8% plus inflation over the past 200 years. (Jeremy Siegel, Stocks for the Long Run, McGraw Hill, 1998). The returns in the late 1990’s created unreasonable expectations. The massive correction of 2008/09 created a disillusion of the market’s ability to provide real returns.
In addition, many people have come to distrust mutual funds as a black box of investments.
In order to simplify a person’s choices and investment options, a number of transitions are taking place. I have coined the term “Deep Simplicity Investments” as part of the Financial Coach Approach to Financial Planning.
The principles are simple:
- There should be proper asset allocation between fixed income and blue chip dividend paying companies. This should be coupled with the appropriate allocation among financials, resources, utilities, consumer goods etc. In addition we would integrate some ETFs to capture markets or indices to provide global market exposure.
- There should be a regular and regimented reallocation and rebalancing of the above allocation should any particular sector become out of sync.
- The “magic” of compound return.
Based on your investment policy statement and the amount of capital involved a model of investments can be selected which is most suitable to you.
In the November 15, 2010 issue of Barron’s it was stated that current allocation of the endowments at Harvard and Yale target the following allocation: 30% Equities, 30% Bonds, 15% Real Estate, 15% Commodities and 5% Currency. We have built our models on a similar formula.
To help reduce investment costs we use a fee-for-service model. With a low annual fee there are no additional commissions, trustee fees, trading costs or hidden MERs.
The above “Deep Simplicity Solution offers piece of mind and superior investment management for my clients’ assets. Expectation of returns is realistic. It is meant for serious money.