By SJS Senior Advisor & Director of Institutional Investment Management Kirk Ludwig.
What do bicycles and portfolios have in common? More than you might think. My son likes to tinker—to take things apart and put them back together, to see how they work. When he was younger, we bought him a new bike, and the first thing he did was take it apart. But, after he was done taking it apart and putting it back together, there were three pieces lying on the garage floor. The bike looked the same as it did before, but when he tried to ride it, something wasn’t right. It still looked like the original bike, but it didn’t work like it was supposed to. You need all of the pieces, in all of the right places, for the bike to function properly.
So, what about all of the components of your investment portfolio? Have they been mindfully assembled? Or do you have some extra pieces like yield, term or liquidity lying on the proverbial floor? All of these pieces are necessary to have a complete, well-designed portfolio.
For example, we find that many fixed-income investors will look only for the highest yielding bond without considering what it may do to the bigger picture. Buying a bond isn’t just about the yield; there are more components to evaluate. We also need to consider maturity, the creditworthiness of the issuer, the structure of the bond (e.g., callable versus non-callable), how the yield compares to similar bonds, and most importantly, how the bond may impact the degree of risk of the entire portfolio.
When we build an investment portfolio, whether it’s a bond portfolio or a diversified portfolio that includes stock and bond exposure, the focus is on how all of the pieces come together, not on just any one component. The value of the design lies in the way all the components integrate and work together.
You could also compare a balanced portfolio to the inner-workings of your car. Sure, all cars need an engine to go. That’s what powers the car. But, a good braking system is just as important—you need to have quality tires and stable brakes to be able to balance the power and strength of your engine. If your engine needed work, you wouldn’t take your car in to have the brakes fixed, or get new tires to correct the problem.
It’s the same with your investments. Instead of an engine, brakes and tires, you have safety, liquidity and return to consider. All have their places in both longer-term and shorter-term investments and serve different purposes. But, all are also useful in designing a balanced portfolio.
At SJS, the MarketPlus® Investing approach is to help you understand risk, first and foremost. Then, we utilize all the parts to construct a portfolio designed to meet your objectives and goals using our MarketPlus models as the cornerstone. We know that investing is different for everyone, just as there are different car options for everyone. We base investment recommendations on what you’re trying to accomplish and knowing what you need to get there. And, finally, by putting all of the pieces in all of the right places to build and maintain a portfolio that can help you get to your destination.
Important Disclosure Information:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
MarketPlus Investing® models consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
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