Atlantic Capital Management

Atlantic Capital Management (114)

Wednesday, 28 August 2013 00:00

“Rightsizing” the DIY Portfolio

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You’re probably familiar with the term “rightsizing” from its common use in corporate America, where it usually describes a situation in which an organization makes changes to the corporate structure, such as reductions in workforce or reorganization of management, with the goal of restructuring the business so it performs optimally. (This process used to be called “downsizing,” a term which has taken on an almost universally negative connotation, and has thus been replaced by the far-friendlier term we’re using here.) What you may not be familiar with is the concept of rightsizing your investment portfolio so that it provides both a vehicle for achieving your financial goals AND giving you security and peace of mind. Rightsizing a portfolio is especially important for DIY investors; if you’re managing your investment strategy without the help of a professional advisor, it really does pay off in the long run to understand how issues like liquidity, asset allocation, and diversification can impact your money, and your security, in both the short run and over time. Below, we discuss several of these topics, and offer practical advice for effectively rightsizing your investment portfolio.


The guiding principle for rightsizing your portfolio should sound familiar if you’ve read any of our other blog posts about the “4 Rs” of DIY investing: careful, judicious, and realistic planning is the cornerstone of putting together a rightsized portfolio. There are many unfortunate stories of DIY investors chasing unrealistic performance benchmarks, putting their money at risk by “getting in over their heads” and over-leveraging their liquidity, or not effectively planning for the fact that different asset classes generally perform differently (i.e., stocks and bonds usually don’t move in the same direction!). We hope that you don’t become one of these unfortunate stories, and we offer the following tips for effectively rightsizing your investment strategy. These are drawn directly from our experience managing our clients’ portfolios, and generally summarize our professional approach to making sure that our clients get the returns AND security they want and need.


Leverage your liquidity wisely

This piece of advice might seem self-evident: invest only what you can afford to invest, given your current life circumstances. Alas, we regularly see and hear of scenarios in which DIY investors over-commit themselves, usually in an attempt at “out-performance,” and run into serious financial issues when their investments underperform (sometimes dramatically) or market conditions fluctuate unexpectedly. Risk tolerance is a focal point of rightsizing a portfolio. Apply a realistic, even conservative, risk tolerance metric to your current liquidity scenario and review and revise it often. As we’ve mentioned before, your investment strategy should be formulated according to your long-term goals, but must be realistically linked to your current station in life. A truly rightsized portfolio begins with knowing that you can afford to fund it without compromising your family’s short-term financial security.


Asset allocation is critical

Generally put, the concept of asset allocation is simply a strategy for deciding which investment products represent the best options for reaching your financial goals and adhering to your risk tolerance threshold. Common asset classes include stocks, bonds, cash, and U.S. Treasury securities. More specific products, like lifecycle funds, bond funds and good old stock mutual funds also exist within these broader categories. Specialized asset classes like private equity funds, real estate, and commodities like gold and other precious metals are also available, but less likely to be a large part of the average DIY investor’s portfolio. Realistic asset allocation is a critical factor in the success of any investment strategy. As the old saying goes, putting all of your eggs in one basket rarely works well; if you lose the basket, you lose all of your eggs! Historically, bonds, cash, and stocks have been the bedrock foundation for most asset allocation strategies, as the relative fluctuations of these asset classes tend to balance each other out quite effectively in both short- and long-term scenarios. Specialized assets can be added to or removed from a portfolio as goals, and markets, change. At ACM, we practice asset allocation stridently, offering our clients diversification across the five major market categories. We can’t overemphasize the importance of understanding asset allocation, and realistically selecting asset categories that match your goals, means, and appetite for risk.


Diversify, diversify, diversify

Most reasonably-educated DIY investors recognize intuitively that portfolio diversification is a “no-brainer.” What many investors don’t realize is that effective diversification takes place at multiple levels. A solid portfolio is diverse at both the macro and micro levels. For example, it’s just as important to diversify within an asset category (i.e., funding both individual equities AND equity funds) as it is to diversify across asset categories (i.e., funding stocks AND bonds). Furthermore, it’s possible to diversify even further within asset classes by focusing on specific markets, industries, and verticals. If your risk threshold permits, you may want to add some specialized assets to the mix. (If this makes sense to you, you’ve probably already realized that this process involves a lot of research. Diversification at both the macro and micro levels helps greatly to buffer your portfolio against the inevitable market fluctuations that come with long-term investing. If you don’t have the time or wherewithal to “deep dive” into diversification, some firms offer products known as lifecycle funds, which target specific investment goals like retirement or college planning and “automatically” adjust diversification strategies over the term of the fund. Lifecycle funds can be effective diversification tools for some DIY investors, but we’ll point out again that adopting a lifecycle fund makes sense only if it’s not an “eggs in one basket” strategy.


Whether you’re just starting out or have been managing your own money for years, it’s never a bad idea, nor is it ever too late, to apply the principle of rightsizing to your DIY investment strategy. If you’d like to learn more about our strategies for rightsizing our clients’ portfolios, we encourage you to contact us to schedule a free consultation today.


Friday, 09 August 2013 00:00

Research Strategies for DIY Investing

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If you’ve spent any time searching for financial advice online, you’re surely aware that the Internet is replete with Squawkers, talkers, gawkers, and hawkers. From big-company websites to late-night infomercials, there is no shortage of available advice, opinion, and research. Giant financial services firms use it to sell their (highest-margin!) products and services, “unbiased” advice websites use it to drive clicks and sell advertising (usually for the giant financial services companies), content aggregators package and feed it through various social media outlets, and talking heads use it to make themselves look smart on TV. Some of this information is solid and valuable; some of it is not. Some of it is shockingly bad. Most of it is free; some of it is parked behind paywalls. On the whole, the widespread availability of financial research is a good thing for DIY investors, but the mind-boggling number of outlets and options can make even the most stalwart consumers scratch their heads in bemusement (and/or bang them on whatever hard surface happens to be nearby).

The value of personally researching financial instruments for your portfolio is (or should be) self-evident. After all, it’s your money, and if you’ve chosen the path of managing it yourself, it’s wise and prudent to understand as much as you can about how various instruments and markets perform. Markets change, strategies change, economic fortunes change, and risk is everywhere. Outside of partnering with a certified financial planner like Atlantic Capital Management, the willingness and ability to get down in the weeds and research your investments is probably the smartest move you can make if you’re going to manage your own money.

At ACM, we use high-level aggregate analysis of the five major market sectors (domestic and international equities, fixed income, real estate, currency, and commodity and cash equivalents) as the cornerstone of our research methodology, and we incorporate that analysis into all of our client interaction, individualized for every portfolio. (If you’d like to learn more about our investment methodology, you can do so here.) DIY investors sometimes partake in high-level analysis, but our experience shows that most DIY investors tend to focus more on the practical, tactile issues surrounding things like ratings, performance benchmarks, and sector trend analysis. With that in mind, we’ve prepared some useful tips for getting the most out of your research, which you’ll find below.

(As a caveat, we’ll take a moment here to mention that in general, we don’t subscribe to an investment strategy which is focused on “out-performance.” In our view, simply benchmarking against performance indicators doesn’t provide enough context for the management of a truly individualized portfolio. As we’ve said before, focusing solely on “out-performance” gets a lot of people in trouble, because the drive to artificially adhere to an arbitrary performance standard wreaks havoc with a risk tolerance strategy. In a lot of ways, an investment strategy focused on “out-performance” is a lot like stereotypically trying to “keep up with the Joneses.” Most of the time, your own grass is plenty green enough.)

Cross-check opinions and advice from various sources

Treat your research as due diligence. Invest the time necessary to cross-reference advice and opinions relevant to your risk tolerance, asset allocation, and performance strategies. You’ll find that a lot of investment advice, even from reputable firms, has a certain “flavor of the month” aspect to it. If a particular strategy catches your eye, and fits into your various profiles, double-check it for a consensus (or non-consensus) opinion. Try to find practical examples that line up with your approach and expectations. Where possible, directly solicit opinions from others.

Consider the source

Marketing is a necessary evil of the financial services industry. Unfortunately, so is hype. The industry is so crowded with players, big and small, that the penchant for trying to “stand out in the crowd” is prevalent even for the most conservative firms. The “big guys” have a relentless drive to churn out more new products and services every day. The “little guys” often follow along in an attempt to look bigger and more influential. The pundits and talking heads are tasked with capturing clicks, eyeballs, and viewers. Truly objective research is hard to come by. Our advice is to rely as often as possible on the “neutral” information sources like FINRA (Financial Industry Regulatory Agency). That’s not to say that good advice can’t be gleaned from the Charles Schwabs, Fidelitys, and INGs of the world, nor is it to say that the “boutique” investment firms aren’t providing good information, either. You may genuinely be able to gather some good advice from those sources. But remember, that research is designed to sell products and services, not necessarily to inform you on how to best manage your family’s nest egg. Be critical.

Consider paying for it

If you’ve chosen to bypass the services of an investment firm like ACM in favor of doing it on your own, you may want to consider paying for access to high-quality, less-biased (notice we didn’t say “non-biased’) research. Services like Morningstar Premium provide a plethora of “independent” research for a fairly low subscription fee (although you’ll still see plenty of ads for the big financial firms even behind the paywall).

Don’t rely solely on ratings

This is particularly true for equities. Ratings and “stock screener” tools are great for aggregating snapshot research into an easily-digestible format. But ratings and stock screeners are essentially a “one-size-fits-all” proposition. Use them to supplement honest, detailed, and relevant research and advice. Avoid the tendency to over-rely on dashboards and other simplistic widgets. Always make sure that what you’re seeing corresponds to your risk tolerance and overall investment strategies.

Doing your own portfolio research can be an interesting and engaging pursuit, albeit with some pitfalls and things to watch out for. Be wide-ranging, be critical, be diverse, and make sure you’re always benchmarking your research against your goals, strategies, and risk profile.


If you’d like to learn more about our high-level analytical process, we encourage you to contact us to schedule a free consultation today.

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