The Best Performing Asset Class of 2017...

Will be known on December 31st, and probably not a day before.

Now, there is a big difference between knowing for sure what will happen and making forecasts and projections to help determine what is likely to happen. The problem is that it can be hard to tell what an article, story or sales pitch is really saying.

As everyone is well aware, there is no shortage of opinions these days and the investment world is no different. We see everything from full blown uninformed speculation on how unfolding economic and political events may impact the markets, to thoughtful and careful analysis to gain insights and build expectations to which asset classes we think will likely perform better than others. As with many things, some predictions are better than others, and at the end of the day, the market speaks and often moves in unexpected and unanticipated ways.

That unpredictability and inability to precisely determine the direction of the market is one of the strongest cases for diversification. Buy a little of everything and you'll get a nice blended average in the long run. Many mutual funds and exchange traded funds use this exact strategy. It is a very reasonable approach.

There have been many attempts to determine patterns in asset class returns over time, but few predictable reliable patterns emerge. Here is a grid of returns of some popular asset classes over the past 16 years. Do you see a pattern? Please let me know if you do. :-)

The point is that even though we can be fairly confident about some aspects of the economy and markets – such as interest rates rising in the short to medium term, we can't be 100% sure. We also don't know the magnitude or the impact of other factors, such as inflation.

So what do you do?

For our money and our client's money, we use our best judgment about what is most likely to happen and then align your investments with your willingness and ability to take risk. We invest for the long term. The process we use is personalized and updated periodically. Once you've built a diversified portfolio aligned to your risk tolerance, you can generally expect less volatility and you can confidently say that you've participated in that hot sector, whatever it may be and whenever it may be.

PLEASE REMEMBER:

- INVESTING AND INVESTMENT MANAGEMENT INVOLVES RISK, INCLUDING THE LOSS OF YOUR INITIAL INVESTMENT OR ANY INVESTMENT GAINS.

- PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

- THIS GENERIC INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION FOR ANY INDIVIDUAL TO TAKE A SPECIFIC ACTION.

- PLEASE INVEST PRUDENTLY AND SEEK PROFESSIONAL HELP FROM A FINANCIAL ADVISOR, INVESTMENT MANAGER, ACCOUNTANT, LAWYER OR OTHER PROFESSIONAL ON MATTERS THAT YOU ARE UNSURE OF OR THAT ARE UNIQUE TO YOUR PERSONAL CIRCUMSTANCES.

- FINANCIAL PLANNING AND INVESTMENT MANAGEMENT SERVICES PROVIDED BY J. BRADFORD INVESTMENT MANAGEMENT, NASHUA NH.

On This, We Can Actually Agree

There wasn't much agreement between or even within the political parties leading up to the election and I suspect that the deep disagreements will continue well past the election. I'll let the political pundits blog and pontificate on that.

Likewise, there is much disagreement in Financial Services and Investment Management, but there are also some broadly accepted principles and strategies.

One in particular.

J. Bradford Investment Management thinks it's a good idea

Forbes thinks it's a good idea

Morningstar thinks it's a good idea

NASDAQ thinks it's a good idea

CNBC thinks it's a good idea

In fact, just about every major financial institution and publication will espouse the virtues of this fundamental investment activity – rebalancing.

There aren't many universal truths in the investment management industry, and even rebalancing has some detractors, but the importance of periodically rebalancing your portfolio is probably one of the few things that the investment community is largely in agreement with. Sometimes you'll hear it referred to as a “free lunch”.

There has been a significant amount of institutional and academic research on the topic and generally speaking, over time, investment outcomes improve through periodic rebalancing. You'll find different opinions on how often to rebalance, the tax considerations of rebalancing and how wide to cast your asset allocation net, but there is broad and general consensus on the need to diversify and rebalance.

If you are working with an investment manger or financial planner, it is likely that rebalancing is one of the specific tasks that they are working on for you. They'll determine what is the right mix of asset classes and how often should they be rebalanced.

If you own a target date mutual fund or are part of a robo-advisor platform, there too, one of the key tasks of the portfolio manager undertakes is to ensure that the portfolio assets are closely aligned with the fund's objective and periodically rebalanced. That task is covered by the management fee you pay.

But what if you are in “do-it-yourself” financial planning mode? What are the steps to rebalancing?

Very generically the steps would be:

1) Determine an appropriate level of risk and your individual risk tolerance – your willingness and ability to take risk. This on-line tool from Vanguard can help you get started.

2) Build an asset allocation model that aligns with your level of risk – this on-line tool from investor junkie can help you work through some of the individual considerations

3) You can also inform your asset allocation by understanding how institutional managers allocate their portfolios and why.

4) Determine what your existing asset allocation is. Sometimes you can find this information on-
line or on a recent statement, but sometimes you'll have to ask the company you are doing business with for this info.

5) Then you can compare your existing asset allocation with your desired asset allocation, given your level of risk, and determine the magnitude of the gaps. The bigger the gaps, the more important it is to consider rebalancing. One strategy is to establish "bands" and when one asset class moves outside an established band, it triggers a rebalance.

This whole process can be confusing and overwhelming, so    J. Bradford Investment Management does offer very targeted services for investors who want an assessment of their portfolio positions and detailed insights that may help them bring their portfolios back into their desired alignment.

You can use the link below to schedule a free consultation.

PLEASE REMEMBER:

- Investing and investment management involves risk, including the loss of your initial investment or any investment gains.

- Past performance is no guarantee of future results.

- This generic information is provided for educational purposes only and should not be construed as a recommendation for any individual to take a specific action.

- Please invest prudently and seek professional help from a financial advisor, investment manager, accountant, lawyer or other professional on matters that you are unsure of or that are unique to your personal circumstances.

- Financial Planning and Investment Management Services provided by J. Bradford Investment Management, Nashua NH.

5 Ways to pick your 401(k) or 403(b) differently than your basketball bracket

TOURNAMENT TIME

No doubt your office sports guru or the take-charge sports fan in your life has distributed brackets or the URL for you to make your picks in the upcoming NCAA basketball tournament.

But if you’re like most of us, you don’t know a whole lot about college basketball, you haven’t watched that many games throughout the season, and you probably won’t get around to doing the picks until just before the deadline.

When it’s time to pick, you’ll implement some combination of well-known strategies to choose your teams – pick the higher seed, pick teams playing close to home, pick teams that are hot and the ever-popular, pick the team with the cutest mascot. Maybe this year you’ll get lucky…

That kind of cavalier approach is probably fine for your basketball bracket, but if you pick your 401(k) or 403(b) investments in a similar fashion, you could be significantly and negatively impacting your investing objectives.

FIVE STEPS

So how do you pick investments from that daunting list of investment choices? Truthfully, it’s not easy and it can be quite complicated based on your situation and your individual risk factors, but in general there are five basic steps everyone should follow:

1)     You should first determine your ability and willingness to take risk. This can generally be accomplished by taking a risk questionnaire or other assessment tool either on-line or with a professional.

2)     You should align your risk tolerance with an appropriate asset allocation. There too, there are many sophisticated models available on-line, usually used in conjunction with a questionnaire or you can discuss your situation with a professional. No one single chart can be used by everyone, but a simple model may look something like this one, which is provided for illustrative purposes only.

3)     Determine the asset allocation mix of the funds available to you and find the possible combinations of funds that align to your allocation. There may be funds that you don’t want in your allocation and there may be many choices to meet a particular category, such as U.S. stocks. You’ll also want to be sure that your selections provide enough diversification, particularly if you have company stock.

4)     Make your final selections. Once you have a diversified mix of possible choices across multiple asset classes and are still trying to choose which ones - funds with lower fees and funds that have higher risk adjusted returns are two areas to consider focusing on. Sometimes that information is summarized in a nice chart and sometimes that information is provided in summary form through a third party, but often you have to go from fund to fund to make that assessment. Assessing funds against their benchmark and against their peers is another prudent step.

5)     Finally, you need to periodically rebalance your portfolio. As investments increase and decrease in value, your portfolio may become riskier than you intend or not be risky enough. You may have to buy or sell some positions to bring your asset allocation back into balance.

Again, each of those steps can have many complicating factors depending on your individual situation. If you would like help with any of the steps above or would like professional management of your 401(k) or 403(b), please schedule a free consultation or give us a call.

PLEASE REMEMBER:

- Investing and investment management involves risk, including the loss of your initial investment or any investment gains.

- Past performance is no guarantee of future results.

- This generic information is provided for educational purposes only and should not be construed as a recommendation for any individual to take a specific action.

- Please invest prudently and seek professional help from a financial advisor, investment manager, accountant, lawyer or other professional on matters that you are unsure of or that are unique to your personal circumstances.

- Financial Advisor and Investment Management Services provided by J. Bradford Investment Management, Nashua NH.