Investing

By: Andrew Rosen, CFP®, CEP®

The much-anticipated part two of my investing vs. speculating blog.  Last week I wrote about spec investing. I spoke about how to the untrained eye it looked like investing and even in some cases it could be considered investing.  But today I am going to focus on real-world, practical investing. 

What is investing hot shot?

Now for the purposes of today, I am going to call real investing an art and a science.  I would even go a bit further and call true investing an actual discipline.  You see, the problem with speculation is just that – it is a shot in the dark in most cases.  Now as I established last week, that doesn’t mean it can’t be profitable.  But real investing has guidelines and procedures in place.  Real investing can, and should be, the cornerstone to your planning needs. 

The reason being is when one gets to the discipline of investing, they are doing it with a purpose behind it.  There are well-documented research and principles in place.  There is also a level of predictability that one gets from investing that is needed in planning and lacks in speculating.  At the end of the day investing is a profession, while speculating is a hobby.

Key tenets of investing! 

Here at Diversified, the reason we love investing is that it gives us the ability to make your dreams come true.  It is the gas in the engine that allows you to get to your destinations that we call goals.  It elicits and brings true happiness to those that we touch.  But first, how does one begin to invest rather than speculate?  Hire us, I guess (ha, ha!).  Other than that, let’s start with some key principles, and how we view investing, the discipline, here at Diversified.

  1. Planning & Strategy– Even in our investment department, we lead with planning. While certainly different than planning for individuals, this is a process of evaluating and strategizing what we’re trying to accomplish and how we’re going to do it. We need to understand the objectives for our portfolios and the building blocks that are going to drive the underlying decisions. How frequently will we target changes and what will drive those changes? We believe that for our investment team to be successful, just like any individual or institution, that we must start with the planning process. Ours is very robust and thorough here at Diversified.
  2. Goal-Based– Now that you have your guidelines for how you are going to invest, the next key tenet is the why.  We are huge proponents of goal-based investing here at Diversified.  No one I know is investing to simply make money, or beat the S&P 500 index.  Well, guess what folks neither do we.  Instead, we invest to accomplish your life’s goals and dreams.  Let me ask – does your retirement care about some index, or what your neighbor’s investments have done?  Nope and neither should you.  Rather, when we look at investing it is important that we put a heavy emphasis on what we are investing for as it will lead to a fresh outlook and start to align your investments with your goals.  This is why we believe financial planning must be at the core of any investment strategy.
  3. Diversification– ALL investment managers strike out on a regular basis.  This is why not only having a solid foundation of principles and guidelines is important, but also a well-diversified portfolio is critical.  As a matter of fact, one of the key differences in speculating vs. investing is diversification.  It isn’t taking all your money out of the most well-run companies on the planet to buy swampland in Florida (lack of diversification).  Part of the predictability of true investing comes from the fact one stays well-diversified and balanced. This philosophy, when used correctly, can help investors manage the risk in their portfolios regardless of their risk tolerance. Yes, at the core, diversification always gives you a reason to be disappointed in something (glass half empty).  However, diversification also gives you the blessing of never getting truly crushed in the markets (glass half full). 
  4. Tax Management– Tax management is in some ways an offshoot of your planning process and investment policy statement.  One must decide if they are going to take taxes into consideration when they build a portfolio.  It isn’t a must as an investor, but as an investment professional, we feel it is very important in maximizing one’s returns.  This comes in many different forms from asset location, to tax-loss harvesting.  It can be very simple or very hard depending on how detailed you get.  As someone very smart once said, it’s not about how much you make but rather how much you get to keep.
  5. Risk Management– So far, I’ve spoken about planning, goals, tax management, and diversification.  These are all a way to figure out why we are investing and the optimal way to get there.  A final key component in “investing” is managing risk.  There are many ways and appetites to accomplish one’s goals.  Understanding your propensity for risk and market gyrations is critical in one’s ability to get to the final destination.  As they say, there are many ways to skin a cat (always thought that was a morbid saying).  Similarly, there are many ways to have your investment grow and within your comfort for volatility.  Why this is so important is because balancing your risk appropriately will hopefully prevent you from making knee-jerk reactions when markets fluctuate.  This behavioral investing issue is single-handedly the biggest issue when one goes to create an investment portfolio. We take it very seriously to learn and understand an investor’s willingness and their ability to take risk.
  6. Monitor and Educate– Now we’ve established your portfolio and investment principles.  You are undoubtedly poised for success.  I know it was exhausting getting here, but your work isn’t done yet.  It is critical to stay on top of your game.  How you may ask?  Pretty simple – you have to be a master of your craft by continually monitoring and educating yourself.  Things are constantly changing, new products are always coming on the market, and there are thousands of key data points to keep watch of.  Guess that is a long way of saying, no rest for the weary.  Like anything, if you want to be successful at investing you have to constantly work on your craft.  At Diversified, we have a team headed by our brilliant CIO Mike Horwath along with other top industry brains to constantly sift through all the noise and data.

Einhorn is Finkle, Finkle is Einhorn 

Hopefully, you can start to see the difference between what speculating is and what good old fundamental investing is.  For those speculating, Godspeed; it is a long journey filled with major ups and downs.  My advice to you is the old saying, “pigs get fat, hogs get slaughtered;” know when enough is enough.  Kind of like going to the casinos – at least know when your triggers are to get out of your spec investments.

For those of you that prefer the more predictable foundation, hopefully, these basic guidelines can help you formulate your plan of attack.  Always know we are here willing and able to help any way you need.

As always stay wealth, healthy, and happy!

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
Find out more about Kyle Hill, CFP®
Find out more about David Levy, CFP®

Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.

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