By Mark J. Smith, CFP®, CPA/PFS, CIMA®
The 1990s glorified personal investment selections with many successful day trading companies that allowed investors to log onto accounts and buy or sell stocks alongside the large portfolio managers. Since the economy was prospering, many knowledgeable day traders made large profits, and even novice day traders broke even. When the bear market surfaced in 2000 through 2002, substantial losses were realized by many investors.
With the market recently in a down swing again, everyone is looking for direction and taking advice from the professionals rather than playing the do-it-yourself investment game. A properly planned, diversified and managed investment portfolio are vital to happiness and independence at retirement.
Your investment portfolio is a long term plan designed to help with your full spectrum of retirement goals – lifestyle as well as wealth accumulation – at your desired retirement age. Although single investment selection may be slightly profitable in short spurts, a properly diversified investment portfolio can provide more balance in your investments and may allow for better risk-adjusted results.
Proper portfolio planning is very subjective to each investor. Portfolio diversification is based on your own personal risk tolerance, or the risks that both your finances and your emotions can withstand, as well a properly balanced package of investment options. Make sure your Certified Financial Planner™ meets with you to assess your risk tolerance as well as your diversification priorities and comfort. Be sure to disclose your entire asset collection so your entire portfolio-- not just what your financial planner is managing-- can be balanced. Typically, a diversified portfolio should have a balance of low- and high-risk investments based on your risk tolerance and should include traditional savings accounts, mutual funds, bonds and U.S. or international stocks.
Studies continue to emphasize that how you diversify is more important than what stocks, bonds or funds you purchase. Focusing on investments before policy results is putting the “cart before the horse” and having a poor investment process in place. We help our investors to realize that their focus should not be on beating “the market,” or any other related index. We help them recognize that the primary objective in the management of their assets is to plan for their financial goals. At M.J. Smith and Associates, before any investment decisions are made, a proper analysis of retirement goals, children’s education funding needs, risk tolerance, income tax situation and time horizon is conducted. Only then are investors in a position to make the most important investment decision of all, which is asset allocation.
Disclosures: Asset allocation and diversification does not assure a profit or protect against loss. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investments and/or strategies mentioned may not be suitable for all investors.
Mark J. Smith is a CERTIFIED FINANCIAL PLANNER™ practitioner, a Personal Financial Specialist, a Certified Investment Management Analyst, and a Certified Public Accountant. In 2007 he was named one of the top 10 financial advisors in the U.S. by Registered Rep magazine; Barron’s named him the top-ranked independent advisor in Colorado and number 22 in the U.S.; and the Winner’s Circle, an independent advocacy organization, named him one of the top financial planners in the country. M. J. Smith and Associates offers fee-based services with a comprehensive financial planning approach which includes income tax planning. For more information call 303-768-0007 or visit www.mj-smith.com. Securities offered through Raymond James Financial Services Inc. Member FINRA/SIPC.
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