5 Tips to Maximize Your Investments

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Our history of advising clients began in 1919 when our affiliate, Canandaigua National Bank & Trust, was granted trust powers. Since that time, the S&P 500 has returned well over 5,000%. These long-term gains transpired amidst the backdrop of the Great Depression, Black Monday, the Asian and Russian financial crises, the Dot-Com bust, September 11th, and most recently the U.S. Financial Crisis.

With over 90 years of experience we’ve learned a lot about the markets. So I thought I would share with you today 5 tips to help you make the most of your investments.

1. Understanding and Embracing Risk:

Risk is often described by using terms like volatility or standard deviation which can cloud the true meaning for our clients. True risk is the permanent loss of principal or outliving your money. Volatility and standard deviation are only temporary fluctuations, they are natural and in fact the very essence of what makes free markets work. Markets move in a 3-steps-forward and two-steps-backward fashion, always gaining ground over the long run. Too often investors turn these temporary steps backward into permanent losses by allowing fear to incite bad decision making, and selling at or near a bottom. When volatility is looked at from the perspective of a long term investor, it is your friend, as large drops in the market give you an opportunity to buy quality assets on the cheap and then reap the rewards.

2. Equity - Not Fixed Income - Builds True Wealth:

The historical data is clear on this issue. After inflation and taxes equities beat fixed income handsomely across an investor’s life cycle. On average fixed income barely beats inflation which leads to a negligible increase in purchasing power for decades to come. Therefore equities drive the growth of your principal and your ability to reach your goals. Short term, high quality fixed income does hold a place in the portfolio however. It can be a stable or (non-correlating) asset. So when volatility creates a drop in equity prices you’ll have a stable asset in your fixed income holdings from which you can raise cash to purchase equities at a reduced price.

3. Investor Behavior Drives Wealth:

Equities alone won’t build wealth if you don’t let them. Your behavior is the biggest factor in your success. Your reactions to market movements are more important than the assets you own. One way to help manage your behavior is by turning off the financial news. It is hard to stay optimistic and follow your financial plan when the news is about one crisis after another. Fear attracts viewers, so fear is what the media sells, but in the face of this fear we all tend to feel safer in a group. Following the herd has always led to poor investment performance and bad decision making. Stick to the principles outlined above and let your portfolio work for you. Don’t let the media send you off course.

4. Change is the Only Constant:

All asset classes ebb and flow through various market cycles. What’s hot today will fail tomorrow. Fear, and greed will create peaks and troughs where we least expect it. Not only is this true for markets and sectors, but it is equally true for various investment styles, strategies, and investor sentiment. When looked at through the eyes of a well-diversified portfolio however, we see these highs and lows, across various asset classes as opportunities to rebalance (i.e., selling high and buying low within the portfolio).

5. A Good Financial Advisor Is Like A Good Coach:

A good advisor coaches you on the fundamentals of the game. He or she knows the rules, keeps you from making mistakes and can help you recover from setbacks. A good advisor creates the game plan, adjusts the game plan when necessary, and coordinates the actions of the team. A good advisor is aligned with your goals and is accountable for his or her actions. Your advisor is there for you when times are tough and works hard to see you through to a winning season.

How We Can Help

Taking these thoughts and wrapping them around a well-executed financial plan - anchored to a good advisor - is what leads to success. Understanding the value of this process has led us to provide every client with a Financial Planning Officer, an Investment Officer, and a Relationship Manager. This assures that our clients are well advised in all various aspects of wealth management. Managing wealth is a lot like managing a great baseball team—you don’t win by expecting to hit a home run every time you’re at bat. You win by remaining disciplined, eliminating errors, and executing your best game plan.

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Trust Company of Florida, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

Posted by Kelly Hohman at 10/13/2015 06:09:14 PM