New families reaching out to us tend to have the best questions. How do you think about tax planning? What should I do for college for my kids? Do I really need an investment manager or can I do it on my own? You know, VTSAX and chill?
I love the marketing of VTSAX and chill, but not quite the implementation. So what do we think?
My hope below is to share a recap of how SeedSafe Financial considers our role as investment manager, and about investing as part of the financial work we do together.
Back to Basics
At the start of the year, I get to revisit how the previous year went and what we can look forward to in the current year. This week, I reviewed many market review reports to reflect on our strategy. Each year, we go through many ‘what ifs’ on changes in strategy to see where we might want to change it…but we always come back to the fact that the basics work.
When I think about 2022 from an investment perspective, and what that means for 2023, I really can’t put it better than JP Morgan.
“Lower valuations and higher yields mean that asset markets today offer the best long-term returns in more than a decade. It took a painful slump in stock and bond markets to get here, and the worst may not yet be over.
But after a year of turmoil, the core principles of investing still hold firm.”
The core principles of investing. Back to basics. No matter where we are in a market cycle, our number one goal is to keep the basics in mind.
What are the basics of investing?
You buy an investment, like a stock or bond, with the hope that its value will increase over time. We take the risk of investing with the hope for greater returns in the long term.
First, look at the risk level of an investment and the potential reward to determine whether it has a place in our basket of investments.
Next, we review our basket of investments to determine our best guess at how to minimize risk overall and grow the basket of investments.
Then, it is about your philosophy of how to grow the basket best.
Our philosophy of investing
1. Your time in the market is what matters: focus on long term premiums instead of short term market cycles (timing the market doesn’t work)
2. Diversification: No asset class will outperform all others every year
3. Know what it is there for: What risk level is right for where you are now and how does that change as you reach different points along the way.
- What if you want to buy rental property?
- Why does it matter if you become an accredited investor?
- How should your investments change over $2 million?
- What if you want to take a meaningful sabbatical within the next few years?
- How can you ‘retire’ (aka own your own time) by age 55?
The first two points we can guide you through. We can bring forward our research and understanding of long term markets.
Our work together as a team should be on #3 – what we can plan for and the risk level you want/can/need to take. It all comes back to your life, and how you want to live it. Investments are a tool to support your life.
So let’s talk about risk. If you live in California, which many of our clients do, you know there will be a huge earthquake at some point. You don’t know when it’s coming, but you know the risk is very real. So instead of living in fear, what do you do?
You decide what risks you are willing to take on and what isn’t worth the trade off to you. This may mean having your home reviewed for structural integrity and shore up any deficiencies. You may have a plan for ‘if the big one hits’ with family on how to communicate, meet up, etc. In the end, you will minimize the risks you can control. Or you may decide to move out of California and avoid the risk all together. And both of those options are okay, because you are the only one who can decide what risks you are comfortable with.
Side note, if you do decide to move out of California, I recommend looking at our blog post on Tax Implications of Moving out of California.
The nature of the stock market is similar.
Our work as ‘the investment manager’
We know at some point there will be a recession or large decline, but we don’t know when. So we start with diversification and ensuring we are adding many areas of the market (both US and international) and bonds to the basket.
Funnily enough, 2022 was a year when certain markets lost nothing (Portugal stayed flat) and some other markets were down by less than the US markets. It hasn’t happened in a while, but it’s a good reminder.
These ranges of outcomes are why being a well diversified investor into global markets can really make a difference over time. We never know what exactly will happen politically or economically, but by exposing ourselves to the entire market, we capture a better long term outlook.
Then, when an event, like our current sustained draw down happens, we review history to get an idea of what may be helpful as a small tweak. Past performance is never an indicator of future success, but there are key themes we can lean into.
We ‘shored up’ our portfolio to optimize for where we are in the market cycle with value leaning funds and bond updates. These changes also opened the door to tax loss harvesting for many. For more information on how to think about down markets, check out our blog post here.
There is no universal performance across all investors – we all contribute at different times during the year or have different investment allocations based on what risk we can take. So actual performance will vary. We still keep the long term perspective in mind.
Our work together
Our work together is to be an open dialogue where we can talk through where you are. I don’t want to know ‘your best self’, I want to know the whole you. Because then we can walk together and see where education or clarity might further empower you to make the best decisions for your future self.
We review cash savings, upcoming expenses, and further investments you plan to make. Many of our clients are invested in real estate, private funds or private companies (maybe even your own employer!). Our work together is to decide what risk level your remaining basket of investments should take on.
Then, we sit with it together in the good times and bad times. We discuss your questions and thoughts along the way. And we let time and diversification do the hard work. Is that something you are interested in? Then this might be the relationship for you.
The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services
