While I am a fairly conservative financial advisor, I like to step out sometimes.
My interests include dancing, traveling to third world countries and consuming ethnic foods (particularly Indian and Ethiopian cuisine). I’ve even been convinced to eat a chocolate covered cricket (found in the US and I’m not embarrassed to say it was quite tasty).
You need to dare to be different sometimes; doing the same thing as everybody else and being part of the consensus doesn’t always work.
In investing, I wouldn’t encourage anyone to take more risk than they are comfortable with, but I would encourage folks to be more creative with the risks that they do take. Most investment portfolios that I see look eerily similar to one another. They are heavy in US stocks and bonds with real estate and perhaps some preferred stock mixed in. For the most part, they are reflections of the best-performing asset classes over the past 8-10 years.
The investment world is ever-changing and the assets that have performed best over the last 8-10 years are unlikely to be the best performers over the next 8-10. Think back to when every internet stock was expected to shoot to the sky in 1999 or when the economies of Brazil, Russia, India and China were expected to take over the global economy in 2007. Future outcomes are rarely if ever what the consensus anticipates them to be.
In my opinion, a well-balanced allocation needs to have a little bit of everything. This certainly includes US stocks and bonds. However, let’s dare to be different and try to add assets that separate our portfolio from that of the crowd. What about asset classes that have been out of favor for the last several years? We are always told to “buy low and sell high.” I see very few portfolios with meaningful exposure to international and to emerging market stocks and forget about commodities or precious metals. These are all unloved assets, but history teaches us that yesterday’s ugly stepchild often becomes tomorrow’s darling. How about some cash as part of the allocation? Cash has become a dreaded asset without any yield, but no asset will offer more flexibility down the road (especially during difficult times).
Unfortunately, the concept of portfolio standardization has become institutionalized. To minimize legal risks, retirement plan sponsors will generally offer investment options having the strongest performance over the last 5-10 years. For the same reason, investment houses will offer portfolio models for their clients that can provide the best “back-tested” performance. A common saying in my industry is that “past performance is not an indicator of future results,” but yet we always seem to hang our hat on past performance.
Dare to be a little different with your portfolios.
Trust me, you don’t have to eat a chocolate covered cricket or travel to a bizarre destination to make a meaningful change in your asset allocation.
DISCLOSURE
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, including loss of principal.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.