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Peeling Back the Onion on Investing

I have been a fan of football all my life.  I never played organized football but enjoyed pick-up tackle games growing up.  There was limited complexity to our plays, but plenty of risk with no equipment.  As a casual observer of college and pro games I thought I had an idea of what was going on the field most of the time.  That was, until recently.   I really had no idea how complex it truly is.

My son had played soccer for many years.  As a Freshman in high school, he played on his school’s undefeated team.  He didn’t make the team as a Sophomore.  In June before he started his Junior year, he decided to try out as a kicker for the football team.  With a lot of hard work, he ended making Varsity as the back-up kicker.  That’s when my education began.  Most of it at the dinner table after practice as the son taught the father.

Each player has a specific role with specific responsibilities.  How he executes his responsibilities is determined by the situation.  A punter will use a variety of different options depending on each punting situation and the personnel involved.  He’ll do everything he can to keep his punt away from a speedy returner.   Sometimes he’ll aim for hang time or pinning the other team on the goal line.   Don’t get me started on all the technique differences between punting, kicking field goals, and doing the kick-off.   That’s just the kickers.  When it comes to the quarterbacks it’s almost overwhelming.  It’s no wonder professional quarterbacks demand and get phenomenal contracts.

As I have begun to have a deeper understanding of the complexity of football, I realized that some investors may be in the same situation.  Just as every coaching staff develops a game plan for their next game, every investor should have a financial plan. 

A major part of any plan is determining your goals.  I would imagine a football coach has different goals for each game beyond merely winning.  It’s the same with planning.   Multiple goals are often selected and often include retirement planning, college planning to name just a few.

After goals are selected, a risk profile needs to be developed.  In about 10 questions or so, an advisor can help you understand how much risk you are willing and able to take on.   From there, it’s a matter of creating the appropriate portfolio allocation based on your goals and that risk profile. 

Once the portfolio is invested, monitoring and re-balancing are the keys to keeping your allocation in synch. 

At first blush, this seems easy and as simple as my view of football recounted above.  That couldn’t be further than the truth.  I see many investors who simply refuse to develop a well-balanced diversified portfolio.   They often have a haphazardly constructed set of holdings that in no way resemble a well-designed portfolio. 

Others will just passively invest in S&P 500 index funds.  A similar $100,000 portfolio invested in 2000 would have been worth $90,000 in 2009.   Exposure to other indices or markets like small caps and international over the same period would have seen a growth of the portfolio to ~$137,000.  Diversification is critical from both a growth and a risk perspective.

If you have any questions or would like to discuss further I’m happy to meet for a free, no obligation consultation.

Please feel free to share with others and make suggestions for future articles: peter.oneill@fiduciamwealth.com

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Peter O'Neill