Lessons Learned Over 25 Years As A Financial Advisor
1. Own Good Companies – Invest in stocks that have deep wide moats around them that dominate market share. Chances are that in any economy, good or bad, people will still need to buy laundry detergent, shop at grocery stores, and buy gas.
2. Manage Risk Not Returns – Take profits when earned in short periods of time but just as important learn how to limit your losses. Minimizing losses is just as important as maximizing gains.
3. Stop Losses – This is how to proactively manage your risk through attempting to limit downward market movements.
4. Never invest high percentages in a single stock – Diversification is important but try to avoid investing more than what is prudent per one select stock. (Diversification does not ensure a profit or protect against a loss)
5. Take Profits – Do not be afraid to take profits when they occur in very short periods of time. Take those profits and continue to diversify or better yet, take those profits and put them aside for a rainy day, a family vacation, or to pay cash for a new car.
6. Balance Growth and Value Stocks – Investments rotate in and out of favor. Utilities might be in favor for 6 months or 2 years while technology stocks might lag. Own both. You never know when the winds will change. Over time, most returns will revert back to a mean average across all sectors.
7. Don’t Over-Diversify – Over the years I have seen many investment strategies come and go having too many investments that can leave people disappointed with their returns.
8. Invest for Dividends – Part of your total return over time can be attributed to dividends. If your investment target return over 10 years is 7% and 2-3% can be attributed to dividends, you don’t have far to go to reach your goal.
9. Dollar Cost Average into The Market – Avoid worrying about timing the market. Invest regularly each month. It is one of the oldest most forgotten ways to invest. (Dollar cost averaging does not protect against loss. It involves continuous investment regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of lowprice levels)
10. Have A Time Frame – If you buy any investment such as stocks, bonds or mutual funds and your intention is to hold them for less than 5 years, or if you find yourself constantly worrying about market fluctuations, you may want to consider more suitable investments.
11. Invest Over Time – Rarely does anyone get rich quick. Avoid fads. Invest in things you understand. You worked hard to save your money, don’t squander it. Stick with tried and true companies that have real earnings, real profits and real products that people buy. Avoid stocks that are measured with click through rates, or the stock that you think will triple if the company gets some contract that has some patent pending by the government.
12. Reaching for Yield – The old saying is true: “You get what you pay for.”
13. Two Sides of A Coin – There are always Two sides of a coin. One side involves you as the investor diligently saving while the other side is the market trying to generate a return for you over time. If you stop saving, then you risk not meeting your goals. If you stop investing to grow your savings, then you also risk not meeting your goals. Keep saving and stay invested.
14. Know What You Own – If you don’t know what is in your portfolio then you shouldn’t be invested in it. If you own an annuity and don’t understand what it is or your advisor can’t explain it to you, chances are you should not be invested in it.
15. Consider Investing in Products & Services That You Use – Take ownership of your investments and consider investing in the products that you use on a daily or regular basis. Owning the companies responsible for making the products you use will help you feel motivated to stay invested when the markets get rough.
16. Invest in America – This is an easy one. If you don’t understand foreign investing, then don’t buy foreign stocks. We live in the greatest country in the history of the world.
17. Retirement Distribution Rate - When it is time to retire, use a realistic rate of withdrawal from your investments.
18. Keep a Cash Reserve Fund – Always try to keep 2-3 years of cash reserves on hand as you enter retirement. Use those reserves to augment your income while allowing your investment and retirement accounts to continue to grow. This should give you a buffer to weather any market downturn and confidence to stay invested. Remember #8: If you are taking income from the bottom of your bucket and dividends are filling the top of your bucket, your bucket stays full.
19. Never Make Investment Decisions Based Upon Emotions of Politics – This is both the hardest and the easiest advice for me to give. If you have CNBC turned on all day, and you’re listening to one person tell you why the market is going down and the next person telling you why it will go up then you have already lost. Turn off the news. The internet and news channels sell either fear or greed as their agenda. Use common sense and don’t make decisions based upon “the sky is falling” mentality or the idea that you might miss the boat. In over 25 years as a Financial Advisor, there is always a new boat leaving port and the sky has never fallen.
At the end of the day, there are many investment strategies available which can help us accomplish the same goals. Utilize a strategy that makes sense for you and your family. Don’t try and get rich quickly. Wealth is built over time. Please read my 13 Tenets for Living Financially Independent. There are no guarantees in life, even if you make all the right decisions. The future is never predictable. These are only a few of my personal and financial philosophies that I am grateful to have learned from my family, mentors, failures and successes. I’m excited to share them with you. I hope that this provides you with a glimpse into our Financial Planning practice and with an understanding of the beliefs that I hold for myself, my family and my clients.
Any opinions are those of Richard Hendry and not necessarily those of RJFS or Raymond James. Diversification and asset allocation do not ensure a profit or protect against a loss. Dollar cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. Stop loss orders do not guarantee protection against a loss. In particular, during volatile market conditions, these orders may be executed at prices significantly below the :stop price" set. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance may not be indicative of future results. Dividends are not guaranteed and must be authorized by the company’s board of directors. Investing involves risk and you may incur a profit or loss regardless of strategy selected