Tag Archive for: portfolio

3 Ways to Apply the 80/20 Rule to Your Financial Pursuits

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Ever heard of the 80/20 rule? It suggests 80% of an outcome is often the result of just 20% of the effort you put into it. 

Often, by prioritizing the 20% of your efforts that make the biggest splash, you can reduce excess commotion. In that spirit, here are 3 financial best practices that pack a lot of value per “pound” of effort. 

1. Investing: Be There, and Stay There

You could do far worse than invest, according to a sentiment attributed to Woody Allen: 

“80% of success is showing up.”

Going back to 1926 and after adjusting for inflation, U.S. stocks have delivered about 7.3% annualized returns to investors who have simply been there, earning what the markets have to offer over the long haul. Those who instead fixate on dodging in and out of hot and cold markets are expected to reduce, rather than improve their end returns. That’s because, when markets recover from a downturn, they often more than make up for the stumble quickly, dramatically, and without warning. Instead of chasing trends, simply stay invested over time.  

2. Portfolio Management: Use Asset Allocation, and Don’t Monkey With the Mix

Asset allocation is about investing in appropriate percentages of security types, or asset classes, based on their risk/return “personality.” For example, given your financial goals and risk tolerances, what ratio of stocks versus bonds should you hold?

Both practical and academic analyses have found that asset allocation is responsible for a great deal of the return variability across and among different portfolios. So, to build an efficient portfolio, we advise paying the most attention to your overall asset allocation, rather than fussing over particular securities. Luckily, if you’re a client of ours we’ve already taken care of this for you. 

3. Financial Planning: Do It, But Don’t Overdo It

Also in 80/20 rule fashion, an ounce of financial planning can alleviate pounds of doubt. Planning connects your resources with your values and priorities. It’s your touchstone when uncertainty eats away at your resolve. And it guides how and why you’re investing to begin with. 

Here’s some good, 80/20 news: Your plan need not be elaborate or time-consuming to be effective. In The One-Page Financial Plan, author Carl Richards describes: 

“Your one-page plan simply represents the three to four things that are the most important to you: some action items that need to get done along with a reminder of why you’re doing them.”

If you’d like to do more, great. But even a one-page plan will give you a huge head start. Write it down, as Richards describes. When in doubt, read what you’ve written. Is it still “you”? If so, your work is done; stick to plan. If not, consider what’s changed, and update your plan accordingly. I

Building Lifetime Wealth, 80/20 Style

Properly applied, the 80/20 rule can help minimize the time and energy you have to put into maximizing your financial well-being. Whether you’re saving for retirement, funding your kids’ college education, preparing for a wealth transfer, applying for insurance, or otherwise managing your hard-earned wealth, we can help you identify and execute these and other actions that matter the most, so you can get back to the rest of your life. 

Ready to put the 80/20 Rule in action for yourself? Give us a call today.

Cary Facer

Partner Emeritus, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Letter to Clients on Market Volatility

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Year to date, 2022 is in bear market territory across multiple markets. To place that news in meaningful context, we pose two questions: 

  1. In better times, had you boldly “pre-decided” what you would and would not do during the next bear market? 
  2. Even if you had disciplined bear market plans in place, have you been wondering whether you should un-decide anything anyway? 

Admittedly, it’s a tall order to whistle past the graveyard of recent market returns without being haunted by at least a dash of indecision. Given how unsettling many third quarter and year-to-date events and performances have been, you may struggle to un-notice the usual swarm of hand-wringing predictions and “this time it’s different” warnings about what may lie ahead. 

Perhaps the scariest part isn’t necessarily the numbers themselves, as much as the lingering uncertainty of it all. When will the pain end? 

Unfortunately, we can’t answer that, or guarantee the doomsday predictors aren’t right. But we can be inspired to reframe the uncertainty and understand what to make of it based on recent reflections from Dimensional Fund Advisors’ David Booth: 

“You can feel empowered by uncertainty instead of beaten down by it. Without uncertainty, there would be no opportunity. … If you think about it, the life equivalent of compound interest is wisdom. Learning from the past helps you make better decisions in the future, and those lessons build on one another over time.”

In that context, let’s look back to the last time we encountered some of the inflationary and potentially recessionary economic conditions we’re currently enduring. We now have the compound wisdom to know just how wrong an infamous 1979 BusinessWeek cover story turned out to be when it declared “The Death of Equities.” Eventually, BusinessWeek rolled into Bloomberg’s publications. Forty years later, in 2019, a Bloomberg columnist described how they were “still getting grief” about it:

“Three years after [“The Death of Equities”] appeared, the stock market hit bottom and then began a remarkable resurgence. The total return on the Standard & Poor’s 500-stock index since its 1982 low, with dividends reinvested, has been nearly 7,000%. Not bad for a corpse.”

It would’ve been a bad idea to give up on capital markets in 1979. It remains a bad idea to give up on them today, especially given the compound wisdom we’ve acquired since then. Durable, well-diversified asset allocation remains our best strategy in bull and bear markets alike. 

“Great investment experiences treat most portfolio decisions as non-decisions. They’ve been pre-decided, and are immune to market prices, sentiment, and human judgment. They remove agency, and thus reduce regret.” 

— Rubin Miller, Fortunes & Frictions

We encourage you to recall everything we’ve already done to manage your globally diversified mix of stock, bond, and appropriate alternative investments. We’ve based your portfolio on the assumption that markets are durable over the years and frequently uncertain in real time (and yes, as we’re seeing, that can apply to bond markets, too). We can also discuss myriad bear market actions worth considering at this time, such as:

  • Sticking with your well-planned portfolio mix (reallocating when appropriate for your personal financial goals).
  • Periodically rebalancing to stay on target. 
  • Tax-loss harvesting in your taxable accounts.
  • Adding even more investable assets to your portfolio while prices are low (especially if you’ve got a long time to invest). 
  • Taking a close look at your discretionary spending (especially if you’re in early retirement).

How else can we assist you and yours at this time? Please let us know if we can answer any questions about current market conditions, or anything else that may be on your mind.

Kirsten C. Cadden, CFP®

Associate Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Will Your Vote Move the Market?

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Election seasons are highly polarized and leave investors from both sides of the political aisle paralyzed by what-ifs and fear of the other. This seems more true now than ever. Given COVID-19, supreme court implications, and an incredibly divided nation in terms of policy wishes, we expect a volatile finish to 2020. Due to an expected record number of mail-in ballots due to the election, it’s even possible the results aren’t known for days or even weeks. It’s normal to be concerned, but does the data support it? Does taking investment action make sense?

Believe it or not, I wrote the above days before President Trump and the First Lady contracted COVID-19. Can 2020 have any more twists and turns? Our team at Warren Street sends our thoughts and well wishes to them both, their families, and their staff. We hope a speedy and full recovery ensues. The diagnosis for President Trump is undoubtedly troubling given his age and possible pre-existing conditions, it’s sure to inject additional doubt into investors’ minds. CDC data however is still dramatically in his favor and it’s safe to assume he’ll receive best-in-class care. Historically, election seasons have in-fact provided for increased volatility in the markets. In addition, the dispersion in results and returns has been all over the map especially in the short term. You should find comfort however in the fact that long term returns have generally been positive regardless of who’s been at the Presidential helm or a split vs. unified congress. More details to come.

Let’s start with volatility (chart below). Taking a look back to 1929 you’ll see that the election year realized volatility exceeds non-election year volatility in September-November by a rather dramatic amount as measured by daily standard deviation in returns. I can’t say whether the current September 2020  volatility is caused or simply correlated to this phenomena. With U.S. stocks down over 7% 9/1-9/23 there’s plenty going on in the world to not simply chalk this up to election hysteria.

Now that volatility is out of the way, let’s talk returns, starting with short term returns. It is abundantly clear what investors prefer, and it isn’t what you’d think. The President is less significant than the balance of power. Returns tend to be best with a split congress, or in the best performing case a Democrat for President with a Republican congress. Why might that be? Gridlock. Investors love the status quo, but more so corporations love the predictability that comes with it. The ability to invest, forecast, and produce without the prospects of a changing playing field often lends itself to unimpeded growth.

We all learned in 2016 that polling is VERY fallible. Here we find ourselves again with a rapidly changing landscape of polling results, and most of which seem to be consolidating into the margin for error. Meaning both the Presidential and the Congressional races can go any which way. If we were betting, we’d likely expect a blue wave (Biden win and Democrats take over the Senate). Most of this is because incumbents just simply don’t win while in a recession, it’s only happened once in the last 100 years. The bad news, a Democratic sweep is actually one of the worst outcomes for investment markets historically over the corresponding 2 years (blue below) post election. The good news, you can barely tell a difference after 4 years (light blue below) regardless of who is in office, Presidential or Congressional.

Source: FMRCo

So what do we do now? Proceed with caution. Obviously this election is unparalleled in so many ways, and because of that we can’t solely rely on historical data to give us permission to proceed with blinders on. Having said that, you can make a bullish case for U.S. and Global securities regardless of who wins. What types of companies and which geographies you favor might look very different however. Each party has a different impact on tax code, currency stability, trade relations, etc. It’s important to construct your portfolio with these varied outcomes in mind and not be married to one outcome to succeed.

If you want to review your current investment posture as we head toward the stretch of election season 2020, please don’t hesitate to reach out to our team.

Blake Street, CFA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.