Tips to Keep Emotions and Investing Separate

Reducing your emotions can give you a better chance for investing success

 Money is always an emotional subject, but often when our emotions get involved with our investments we will make wrong decisions. And that can be a costly mistake.

Keeping emotions and investing separate seems almost impossible for many investors. When reacting too quickly and letting emotions cloud judgment, even the most experienced investors do not make the best decisions. However, keeping emotions away from investment decisions can give you a better chance for success.

Here are four tips on how to keep emotions and investing separate:

Tip #1: Set Financial Goals

It sounds so simple, but setting financial goals really is the first step to investing, and financial goals can keep emotions out of the picture if done correctly.

Having goals will help you keep an eye on the big picture.

For example, if you are saving for retirement in 30 years, you know that you have more time to make up for any losses than if you plan to retire in 5 years.

These goals can also keep you focused on what you need to do today to get there.

Tip #2: Stop Checking on Your Performance Every Day

Do you check up on your investments every day, sometimes spending hours figuring out how you’re doing and what you could have done better if you had just moved your investments around? If so, you are just going to drive yourself crazy because all you’ll really see will be market gyrations and mistakes you think you could have avoided.

Checking too often will not benefit your portfolio in any way, but it will cause anxiety. This is even more true if you own individual stocks as checking stock prices too often can cause you to panic, and you might make a snap judgment to trade. Instead, keep your checks to monthly or quarterly, and concentrate on sticking to your overall plan and goals.

Tip #3: Know the Risks in What You Buy Again, it sounds so simple, but knowing what you are buying is crucial to help you avoid emotional setbacks in investing. Always do your own research before purchasing anything, even if you have outside assistance.

Understand what the investment is, how it will help you achieve your goals, what the risks are, and when and how to exit. Without your own research, you will not take full responsibility for your trades, introducing negative emotions.

 

Tip #4: Create a Professional Buffer

You can create some distance between yourself and your investments by putting a financial advisor in the middle of the two.

By entrusting a neutral third party who can help you examine your situation objectively and encourage you to stay on track, you can hold yourself more accountable for the things that you can actually control.

 

MPT

Modern Portfolio Theory (MPT) is a widely used framework for building investment portfolios. Developed by Harry Markowitz in the 1950s, it is based on the idea that by combining different assets in a portfolio, an investor can achieve a better risk-return trade-off than by investing in individual assets. While MPT has been influential in shaping the way investment portfolios are constructed, it is not without its flaws. In this blog, we will discuss some of the flaws of modern portfolio theory.

1. Assumes Rationality: One of the main assumptions of MPT is that investors are rational and always act in their best interest. However investors often behave irrationally and are influenced by emotions and biases. For example, investors may be reluctant to sell a stock that has performed poorly even when it no longer makes sense to hold on to it.
2. Relies on Historical Data: MPT relies heavily on historical data to estimate risk and return. However, historical data may not be a reliable indicator of future performance. Economic and market conditions change over time, making it difficult to predict future returns based on past performance.
3. Ignores Black Swans: MPT assumes that asset returns follow a normal distribution, which means that extreme events are rare. However extreme events or “black swans” can and do occur, and they can have a significant impact on the value of an investment. MPT does not adequately account for these events.
4. Fails to Account for Liquidity: MPT assumes that all assets can be bought and sold at any time and that there are no transaction costs or liquidity constraints. However, some assets may be illiquid, and transaction costs can significantly reduce returns.
5. Overemphasizes Diversification: MPT places a strong emphasis on diversification, which means investing in a variety of assets to reduce risk. However, over-diversification can lead to a portfolio that is too diffuse and has a low potential for returns. In some cases, it may be more beneficial to concentrate investments in a smaller number of assets.
6. Ignores Investor Preferences: MPT assumes that investors are solely focused on maximizing returns and minimizing risk. However, investors may have other preferences, such as investing in socially responsible companies or supporting local businesses, that are not accounted for in MPT.

In conclusion, while modern portfolio theory has been a useful tool for constructing investment portfolios, it has several flaws that investors should be aware of. By understanding these flaws, investors can make more informed decisions and build portfolios that better reflect their needs and preferences.

The topics discussed are for general financial education and are not intended to provide specific investment advice or recommendations. The information does not represent, warrant or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses.

Investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. They are methods used to help manage investment risk. Past performance is not a guarantee of future results.

Individuals should always consult their own financial, legal or tax advisor regarding their specific financial situation before acting on any information provided

Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC

When building an investment portfolio

When building an investment portfolio, it is important to consider a variety of factors that can impact the performance of your investments. Two key analytical methods that can help you make informed investment decisions are technical analysis and fundamental analysis.

Technical analysis involves studying market data such as price trends, trading volume, and historical patterns to identify patterns and trends that can help predict future market movements. Technical analysis can be helpful in identifying buying and selling opportunities, as well as setting entry and exit points for trades.

Fundamental analysis, on the other hand, involves analyzing financial and economic data to assess the health and potential of individual companies or entire markets. This includes analyzing financial statements, management quality, industry trends, and macroeconomic indicators.

Here are some reasons why it is important to include both technical and fundamental analysis when building a portfolio:

1. Diversification: By using both technical and fundamental analysis, you can gain a more comprehensive understanding of the market and individual stocks. This can help you diversify your portfolio and reduce the risk of losses from individual stocks or sectors.
2. Risk management: Technical analysis can help you identify trends and patterns that signal potential market changes. By combining this with fundamental analysis, you can make more informed decisions about which stocks to buy, hold, or sell based on their long-term potential and underlying financial health.
3. Timing: Technical analysis can help you identify entry and exit points for trades, while fundamental analysis can help you identify undervalued or overvalued stocks. By combining both methods, you can make more informed decisions about when to buy or sell stocks.
4. Flexibility: Different stocks and sectors require different analytical approaches. By using both technical and fundamental analysis, you can be more flexible in your investment strategies and adapt to changing market conditions.

In summary, both technical and fundamental analysis are important tools for investors to use when building a portfolio. By combining these methods, investors can gain a more comprehensive understanding of the market and make more informed decisions about which stocks to buy, hold, or sell.

The topics discussed are for general financial education and are not intended to provide specific investment advice or recommendations. The information does not represent, warrant or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses.

Investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. They are methods used to help manage investment risk. Past performance is not a guarantee of future results.

Individuals should always consult their own financial, legal or tax advisor regarding their specific financial situation before acting on any information provided.

Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC

Buckets

The bucket theory of retirement income and the percentage withdrawal method are two common approaches to managing retirement funds. In this blog, we will compare these two strategies and discuss their advantages and disadvantages.

The Bucket Theory of Retirement Income:
The bucket theory of retirement income is a strategy that involves dividing your retirement savings into several “buckets” based on your investment time horizon and liquidity needs. Typically, the buckets are allocated as follows:

• Bucket 1: This bucket contains your short-term expenses (such as living expenses and healthcare costs) for the next year or two. This bucket is usually filled with cash and other highly liquid assets.
• Bucket 2: This bucket is intended to cover your intermediate-term expenses (for the next 3-10 years). It is invested in a conservative portfolio of bonds, CDs, and other low-risk assets.
• Bucket 3: This bucket is designed to cover your long-term expenses (10 years or more). It is invested in a diversified portfolio of stocks, mutual funds, and other high-risk assets.

The idea behind the bucket theory is that you can manage your retirement income by allocating your savings in a way that matches your expenses and investment time horizon. This approach allows you to balance the need for liquidity with the potential for long-term growth.

The Percentage Withdrawal Method:
The percentage withdrawal method is a strategy that involves withdrawing a fixed percentage of your retirement savings each year. The most common percentage used is 4%, which is based on a study by financial planner William Bengen. According to Bengen, a 4% withdrawal rate is sustainable for a 30-year retirement period.

The advantage of the percentage withdrawal method is that it provides a predictable and consistent income stream, regardless of market conditions. However, this approach does not take into account changes in your expenses or investment time horizon.

Comparing the Two Strategies:
The bucket theory of retirement income and the percentage withdrawal method are both effective strategies for managing retirement funds. However, they differ in several key areas:

• Flexibility: The bucket theory provides more flexibility in managing your retirement income. It allows you to adjust your investment allocation and withdrawal strategy based on changes in your expenses and investment time horizon. The percentage withdrawal method is more rigid, as it requires a fixed withdrawal percentage each year.
• Risk Management: The bucket theory provides more risk management than the percentage withdrawal method. By allocating your savings into different buckets, you can manage risk based on your investment time horizon and liquidity needs. The percentage withdrawal method provides less risk management, as it involves withdrawing a fixed percentage of your savings each year, regardless of market conditions.
• Complexity: The bucket theory is more complex than the percentage withdrawal method. It requires more time and effort to manage your savings across multiple buckets. The percentage withdrawal method is simpler, as it involves withdrawing a fixed percentage of your savings each year.

Conclusion:
Both the bucket theory of retirement income and the percentage withdrawal method are effective strategies for managing retirement funds. The choice between the two depends on your personal preferences and financial situation. If you prefer a flexible and risk-managed approach, the bucket theory may be a better fit. If you prefer a simple and predictable approach, the percentage withdrawal method may be more suitable. Ultimately, the key to a successful retirement strategy is to plan early and stay disciplined in your savings and investment approach.

The topics discussed are for general financial education and are not intended to provide specific investment advice or recommendations. The information does not represent, warrant or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses.

Investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. They are methods used to help manage investment risk. Past performance is not a guarantee of future results.

Individuals should always consult their own financial, legal or tax advisor regarding their specific financial situation before acting on any information provided.

Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC

Target

Target-date investments, also known as target-date funds or lifecycle funds, are investment funds that are designed to automatically adjust their asset allocation mix over time based on the investor’s target retirement date. The idea behind target-date investments is that they offer a simple, convenient way to invest for retirement without the need for constant monitoring and adjusting of investment portfolios.
While target-date investments may seem like an easy way to save for retirement, there are several reasons why you should avoid them:

1. Lack of Customization: Target-date investments are designed to be a one-size-fits-all solution, and as such, they may not be appropriate for your specific investment needs. For example, they may not take into account your risk tolerance or other financial goals.
2. Hidden Fees: Target-date investments often come with hidden fees, such as administrative costs or expense ratios, which can erode your returns over time. These fees may not be apparent at first glance, but they can add up quickly and have a significant impact on your retirement savings.
   
3. Limited Control: With target-date investments, you are entrusting the management of your investments to a third party, which may not have your best interests in mind. This lack of control over your investments can be concerning, especially if you have a specific investment strategy in No Guarantees: Target-date investments offer no guarantees of investment returns, and there is no way to predict how the market will perform over the long term. This means that your retirement savings may not grow as quickly as you had hoped or may even decline in value.
4. Inflexibility: Target-date investments are typically structured as a “set it and forget it” investment strategy, meaning that they may not allow for adjustments or reallocations based on changing market conditions or personal circumstances.

In conclusion, while target-date investments may seem like an easy way to save for retirement, they come with several downsides that should be carefully considered before investing. Instead, you may want to consider other investment options that offer more flexibility and customization, such as a diversified portfolio of individual stocks and bonds or a professionally managed investment account. It’s always a good idea to consult with a financial advisor before making any investment decisions.

The topics discussed are for general financial education and are not intended to provide specific investment advice or recommendations. Investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. They are methods used to help manage investment risk. Past performance is not a guarantee of future results. Individuals should always consult their own financial, legal or tax advisor regarding their specific financial situation before acting on any information provided.

Although target date funds are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors’ retirement goals will be met. Investment professionals manage the portfolio, moving it from a growth-oriented strategy to an income-oriented focus as the target date gets closer. The target date is the year that corresponds roughly to the year in which an investor is assumed to retire and begin taking withdrawals.

Target Date and Lifecycle funds are sold by a prospectus. Investors should carefully consider investment objectives, risks, charges and expenses of the fund. This and other important information is contained in the fund prospectus which can be obtained from a financial professional or the fund company and should be read carefully before investing.

Dividend Portfolio

A dividend portfolio is a collection of stocks that pay dividends, which are a portion of a company’s earnings that are distributed to shareholders. Investing in a dividend portfolio can have several advantages over other investment strategies, including:

1. Steady income: One of the most significant advantages of a dividend portfolio is the steady income it can provide. By investing in companies that pay regular dividends, investors can receive a consistent stream of income, which can be particularly useful for those who rely on their investments for income during retirement or other stages of life.
2. Potential for capital appreciation: While dividend-paying stocks tend to be less volatile than non-dividend-paying stocks, they still have the potential for capital appreciation. In other words, the stock price can still go up over time, which can increase the value of an investor’s portfolio.
3. Lower risk: Dividend-paying stocks are often considered to be less risky than non-dividend-paying stocks because they tend to be more established and financially stable. Additionally, companies that pay dividends are generally less likely to cut their dividends or go bankrupt.
4. Tax advantages: Dividend income is taxed at a lower rate than other types of investment income, such as interest income or capital gains. This can be a significant advantage for investors who are looking to minimize their tax liability.
5. Diversification: By investing in a dividend portfolio, investors can diversify their holdings across a variety of industries and sectors. This can help reduce the overall risk of their portfolio and provide exposure to different areas of the economy.

In summary, a dividend portfolio can provide investors with a steady stream of income, the potential for capital appreciation, lower risk, tax advantages, and diversification. However, like any investment strategy, it’s important to do your research and carefully consider your goals and risk tolerance before investing in a dividend portfolio.

The topics discussed are for general financial education and are not intended to provide specific investment advice or recommendations. Investing and investment strategies involve risk including the potential loss of principal. Investment strategies may or may not be successful. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. They are methods used to help manage investment risk. Past performance is not a guarantee of future results. Individuals should always consult their own financial, legal or tax advisor regarding their specific financial situation before acting on any information provided. Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC