“Worrying is like sitting in a rocking chair. It gives you something to do but it doesn’t get you anywhere.”
– English Proverb
You’ve no doubt heard the phrase: “Patience is a virtue,” and it can take extra effort to practice patience as an investor. With today’s advances in trading technology and the fast pace of news, we’ve seen daily swings of one percent or more in the market happen more often. And if you’re like the many individuals who follow the daily gyration of the market, then you know it doesn’t take much before stress creeps in.
That’s why you have SJS on your side. We help take the worrying right out of investing. Leave it up to us to be disciplined and patient. Markets will go up and down, that’s their nature. We believe it is more useful to spend our time on the things we can control. Focusing our efforts on these “controllables” can make a difference in the success of your investment experience.
In 2015, Dalbar’s Quantitative Analysis of Investor Behavior study on investor performance found that fund expenses, including management fees, account for almost 23% of the major causes of equity investor underperformance.1
Another statistic suggests that traditional hedge fund management fees will consume 85% of all investor returns over a 50-year time frame.2 Talk about a haircut on your net return!
At SJS, we believe that investors are entitled to receive the returns of the market. So we work hard to design portfolios in a way to keep your average cost of investing as low as possible. Because just like running a business, revenue is important, but the bottom line profit determines whether you will stay in business and survive the long run.
Keeping your expenses low is important, that’s why many of client portfolios are invested in institutional class mutual funds with average expenses ranging from 0.24% to 0.29%.
Tax rates are out of our control, but we keep an eye on your portfolio design to manage activities that may generate tax. For example, SJS considers taxable events that might occur as a result of a need to rebalance your portfolio. We look for opportunities to reallocate within tax-deferred accounts to avoid generating taxable capital gains. As for stock mutual funds, we strive to select those that offer low turnover of securities.
We are always looking for ways to be mindful of the tax bite. That’s why we often position certain investments, such as publicly traded real estate or taxable bonds in tax-deferred accounts, because they may generate income that is taxed at ordinary rates. These particular tax rates are often less favorable than capital gain rates.
There is no ‘free lunch’ when it comes to trading. There is a cost to buying and selling a security, whether it is a mutual fund, stock or bond. While we generally support the idea of buying and holding a broad market portfolio, there are times when different asset classes or baskets of securities become heavier than their original weighting. And this can cause your portfolio’s risk level to change. If the change is small enough, we accept the incremental risk rather than place a trade. But when the weighting changes enough, we accept the cost of trading as necessary to keep the risk in your portfolio at a level you are comfortable with.
1Market Timing Costs Investors Big: Dalbar, May 31, 2016. Think Advisor Ginger Szala.
2Growing Pains, Financial Advisor, May 2016, David Sterman.