Why Wealth Planning Should Focus on Long Term Strategies

By Bruce Smith | September 18, 2015

Clients often come to us with questions about the market’s future direction. While no one has a crystal ball, we certainly do empathize with the desire to know what the future holds – after all, it would make our job easier, too!

Bruce Smith is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyHowever, rather than waste time seeking the unknowable, we find it more productive to focus on what we do know. Plus, unlike many other investment firms, we’re not in the short-term forecasting business.

But what we can tell you is that since the stock market has made significant headway after hitting that 2009 low point, we’ve noticed two distinctly different paradigms:

  1. On one side, there are those cheering the market’s advance and speaking to legitimate signs of recovery. On the other side, there are those cursing the system and questioning the gains we’ve seen in recent years. Based on experience, history, research -- and an enormous amount of empirical evidence -- here’s what we can confidently state: At any given moment, the stock market reflects the aggregate of all investors’ views, both positive and negative. In other words, market prices already reflect and have responded to market forecasts and to the subsequent positioning of investors.
  2. News, by its very definition, is unpredictable; in the short term, the market does react to news. If news is positive in the future, markets will move higher. If news is negative, markets will drift lower.
  3. Currently, both positive and negative forces are impacting the markets. Positives include growing GDP, increasing corporate profits, improving consumer sentiment, and rebounding industrial metals, commodities and cyclical stocks. These are all indications of economic recovery. Negatives include political uncertainty, concerns about the dollar and the nation’s credit rating, commercial and residential mortgages in need of refinancing, tight lending conditions, and uncertainty overseas.
  4. Over time, owning stocks has rewarded investors more than owning bonds.
  5. Historically, small company stocks have provided more rewards than large company stocks.
  6. Owning value stocks has been more rewarding than owning growth stocks.
  7. Focusing on fixed-income exposure that’s characterized by short duration and high credit quality provides investment portfolio security, while serving as a stable funding source that can be drawn upon during difficult market periods. 

Financial Strategies and the Simple Truth

Bruce Smith is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyWhen it comes down to it, the truth is simple: No one knows what the near future holds for the stock market -- not you, not us, not the financial media, not even the equity research departments of brokerage firms or other financial institution.

A continual focus on the noise -- from "hot stocks" to sensational headlines -- detracts, rather than contributes, to your financial peace of mind, your sense of security... and your portfolio performance.

Shifting Paradigms and Investment Guidance

Very little of the hype and market analysis streaming from investment professionals, their firms, and the media really matters to you as an investor, so instead choose to direct your attention to the portfolio decisions that will offer you the highest probability of meeting your goals over time, such as:

  1. Do you have enough liquidity to weather future market or continued economic weakness?
  2. Are your stock market investments long-term and can you tolerate a short or intermediate-term decline?
  3. Is your fixed income portfolio short in maturity and high in credit quality?
  4. Is your stock portfolio well-diversified with an emphasis on the most rewarding areas of the global markets?
  5. Are you aware of your total investment expenses and are those expenses reasonable in light of the services you receive?
  6. Has your portfolio been reviewed for tax efficiency and has the tax liability regarding your investments been significantly eroding your return?
  7. Do you have an investment advisor who can help you stay on track during turbulent times?
We understand that you face conflicting viewpoints every day. You may feel caught between perspectives that point to a true economic recovery and those who feel that the markets’ current state is nothing more than a stimulus-induced bounce.

Rather than letting the debate and market speculation cause stress and anxiety, focus on the planning decisions and portfolio construction techniques that really matter to you.