Before investing, it is important for an individual to:
- Understand the fundamentals of risk and valuation.
- Develop a point of view about how markets work and where they might break down.
- Find the philosophy that provides the best fit, based on risk aversion, portfolio size, time horizon and tax status.
Therefore, every individual investor should develop an investment philosophy, a core set of beliefs about how investors behave and markets work. Investors with clearly defined philosophies tend to be more consistent and disciplined in their choices. Without an investment philosophy, investors tend to wander from strategy to strategy, drawn by anecdotal evidence or recent success, creating transaction costs and incurring losses as a consequence.
In addition to creating their own investment philosophy, individuals should demand it of their investment advisor. Here is ours.
1. Protect the client.
Money is a very emotional subject, but investing should be as unaffected as possible. We protect the client by:
- Knowing the client,
- Understanding their time frame and risk orientation, and
- Investing according to particular needs.
We are committed to managing our clients’ assets with discipline and integrity.
2. Research every investment carefully.
Our selection process is collaborative, which means we seek the best advice from myriad professional associates we trust. We screen and evaluate investments using a Fundamental Analysis approach. We avoid complex financial instruments that cannot be easily explained or understood.
3. Diversify as broadly as necessary, and with little expense as possible.
To achieve this, we invest primarily in no-load mutual funds or Electronic Fund Transfers (ETFs) using a broad array of investment vehicles:
- Domestic stock funds, comprised of large, medium and/or small companies.
- International funds, mostly value-oriented.
- Some commodities and a variety of bonds funds.
This requires extensive research and management. For every buy or sell decision, we look at the individual holdings that comprise a fund both by industry and by company. The old adage – Don’t keep all your eggs in one basket! – has never been more true.
4. Carefully allocate assets,
Based on the client’s objectives and constraints, risk profile, time horizon, and general economic and market conditions, there are three basic models:
- Aggressive, which suggests more stock funds.
- Moderate, which requires a careful mix of stock and bond funds.
- Conservative, which suggest more bond funds.
This careful blend of stocks, bonds and cash often determines success. Being broadly diversified, in all parts of the stock and bond markets, reduces your risk exposure. Good asset allocation is individually tailored to each client.
5. Always invest for the long term.
This requires patience and discipline. In general, free markets in capitalist democracies work. Prices generally reflect value and information quickly and accurately. Long-term, there has been no better investment vehicle than the U.S. stock market. On the other hand, markets are volatile and may behave irrationally in the short term. The period between September 2007 and August 2011 offered two of the most dramatic stock market crises since the Great Depression. At Rising Tide, we are less aggressive in bad market times, and more aggressive in good market times. While our approach may be contrary to some who have massive financial resources at their disposal, we often manage individuals’ lifetime savings, which are too important to our clients to risk potential short-term rewards.
6. Monitor, measure and communicate.
We continuously monitor accounts and perform formal reviews monthly, more frequently as needed. We measure our results quarterly against both the S&P 500 and individual expectations. We communicate with all clients no less than quarterly, more as their situation or market conditions require. This aspect of our service regularly and predictably returns us to step No. 1 – Protect the client.
In sum, there is no crystal ball. Past results do not predict future performance. You have probably read that on any prospectus you have ever picked up. Well, it’s true. Just about everything you read or are told in the media is based on the past, and guess what! Nobody can predict the future!
Instead, an investment philosophy with guiding principles is the safest, surest way to financial peace of mind.
- Create a Plan.
- Put it into Action.
- Stay on Track.
Rising Tide, Inc. is an independent investment advisory firm. We represent our clients to the investment industry, not the other way around.