by A. Scott White, CFP®, ChFC, CLU
President, Scott White Advisors
It’s easy to evaluate a properly invested portfolio when the markets are in a bullish mood. You can watch the economic indicators over a period of time and see your portfolio’s value increase. However, when the economy takes a serious downturn, discerning the difference can be close to impossible. A market in free fall hinders an accurate evaluation of any sort. When markets are crashing as they did in 2008, the good go down with the bad.
The major indicator is what happens when the economy recovers. As the markets slowly improve, a well-diversified portfolio should follow that upward trend. Well-diversified portfolios can increase in value and often regain what they have lost. The same cannot be said about the value of poorly invested portfolios.
We believe strategic and tactical asset allocation is crucial when creating portfolios. It has the potential to reduce volatility; however, it can’t entirely protect portfolios against negative returns. Such portfolio diversification exploits the reality that different asset classes tend to move independently. In other words, returns are not perfectly correlated.
By combining different asset classes appropriately, individual declines and increases in returns can offset each other, thus evening returns over time. A well-diversified portfolio with appropriately allocated assets (a combination of stocks, bonds, real assets and complementary strategies) historically experiences less volatility than a portfolio invested exclusively in only one asset class.
Another key to successful investing is rebalancing your portfolio regularly to help keep your risk in line with your original investment intent. In the midst of a recovering economy, it’s important to have patience and the advice and guidance of a financial professional. Someone steeped in the vicissitudes of the market can help you create a portfolio designed to benefit during the good times and survive (and eventually recover from) the bad times.
Diversification and asset allocation do not assure a profit or protect against a loss. There is no assurance any strategy will be successful. Please consult your financial advisor before implementing any investment strategy.
Scott White is past president of the Financial Planning Association Southwest Florida Chapter. He is past president of the Southwest Florida Chapter of the American Society of Financial Service Professionals, past president of the Lee County Estate Planning Council, and founding president of the Planned Giving Council of Lee County. For more information, visit www.https://scottwhiteadvisors.com/ or call (239) 936-6300. Scott White Advisors is an independent Registered Investment Advisor and is located at 1510 Royal Palm Square Boulevard, Fort Myers, Florida 33919. Securities offered through Raymond James Financial Services, Inc., member, FINRA/SIPC.