by Carol Clark
a timeless approach for the 21st century
As I wrote last issue, “the factors that must be ac- counted for while structuring financial affairs are much more complicated than ever before.” Given that 400- to 500-point swings in the
Dow have nearly become the norm rather than the exception, this is ringing even truer today than it did a quarter or
two ago. In the previous issue, I outlined the structural and
emotional changes that we suspect have primed the markets
for their current volatile behavior. I also promised to bring
a few ideas for how to keep your wits about you amidst the
chaos, so here goes:
1) Give lots of thought and analysis to strategic asset allocation.
Many studies show that the preponderance of investment return comes from
asset classes you are in for the long pull.
It makes sense. If you were in CDs for the
past 30 years, your returns were different
than if you were in a private business, real
estate, or the stock market. Have a solid
grasp of what you want and need your
funds to do for you. Money you are investing for retirement in 20 years should
be in different vehicles than money you
need for your child’s tuition in the fall of
2012. End uses should dictate what types
of investment buckets you can and should
consider. But (and this is big)…
2) Pay attention to tactical asset allocation.
Blindly assuming which buckets should be
targeted and then slapping on percentage ranges with no eye
toward the valuation of a specific asset class can do as much
harm as help in the long run. For some perspective, think
tech stocks in 1999 or financial stocks in 2007. These are the
shifts that can probably provide the biggest boost or detriment to your overall progress. Often this entails adopting a
contrarian stance. Stocks aren’t always the riskiest asset class
(think valuations in March 2009 or at the bottom in 1987).
Nor are bonds always the safest (think the negative yields of
late 2008 or the volatility witnessed recently in even a five-year Treasury note).
3) Look for a well-reasoned, soundly developed process that will
stand the test of time and market/economic cycles. This goes for
analyzing individual companies as well as potential mutual
funds or money managers. Buying investments is not like
buying lottery tickets, for example, and CNBC should not
be driving your decision-making process. In fact, CNBC can
often be viewed as the infomercial of the investment world.
The market’s day-to-day gyrations are often more reflective of
emotions run wild than they are a testament to fundamentals.
to some of the
basics from those
“good old days”
just might be the
ticket to preserving
your sanity and
Carol M. Clark, CFA, is a partner and investment principal of Lowry Hill, a private asset
management firm that provides proprietary investment management and financial services to
families, individuals, and foundations with wealth
greater than $10 million. The firm manages approximately $5.2
billion in assets for nearly 300 families and 58 foundations from
offices in Chicago, Minneapolis, Naples, Fla., and Scottsdale, Ariz.
She welcomes questions and comments at firstname.lastname@example.org.