Control What You Can

Andrew Prentice |

The pain being inflicted by a diversified set of asset classes in 2018 hasn’t been witnessed since Don Mclean’s American Pie was #1 on the Billboard charts. Ned Davis Research organizes assets into eight major categories from large US stocks to commodities and not one of them is slated to gain more than 5% for 2018, a feat not duplicated since 1972. This doesn’t mean that portfolios are down 30% like during the falls of 2000 or 2008, but traditionally when some assets do poorly you will see other assets outperform, giving at least a little support to the portfolio. This phenomenon, though painful and unpleasant, luckily doesn’t happen often. When it does, it’s important to concentrate on the three things that you can control: Risk, Fees and Time.

RISK – Know the amount of risk your portfolio is taking and the expected loss that it will likely incur at some point through a normal market cycle. You want to make sure when events like these happen (or even worse) you don’t panic and you do stick to your plan. There are many tools out there to help you evaluate an appropriate risk for your comfort zone but one we like to use is RISKALYZE (click to check it out).

FEES – Don’t pay more for similar products. It is ludicrous to me, but there are still index funds out there charging 10 times the amount of others and people are still investing in them. The spread on the fees can be more than 1% - meaning if you invested in a similar product, but with lower fees, you would make 1% more. A no-brainer if you ask me. The other fee we pay is taxes and there are some great strategies, which if implemented correctly and work in your situation, can guarantee you more money in your pocket. A few of these strategies are tax loss harvesting, asset location, and withdrawal order. These three strategies used together can help earn up to an additional 1.75% return by reducing your taxable income.¹ ²

TIME – This is one of the greatest weapons that we have as investors. The ability to look long-term and focus on the future instead of the present. While a lot of people have a hard time with this, especially during these volatile times, it is staying the course that will make you a successful investor. This is why Albert Einstein has been credited with saying “compound interest is man’s greatest invention”. Only after years and years and years of sticking with it will investing truly pay off (pun intended).


¹Kinniry, Francis M. Jr.,CFA, Colleen M. Jaconetti, CPA,CFP®, Michael A DiJoseph, CFA, and Yan Zilbering, 2014. Putting a value on your value: Quantifying Vanguard Advisors’s Alpha. Valley Forge, PA.: The Vanguard Group

²Kitces, Michael E. MSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL, 2014. Evaluating the Tax Deferral and Tax Bracket Arbitrage Benefits of Tax Loss Harvesting.