A few years ago, there was an article about a 17 year old girl in England who ate nothing but McDonald’s chicken nuggets and the occasional french fry. She made the news because she collapsed and doctors told her to fix her diet or expect a short life expectancy.
Obviously (or hopefully) you eat more than just Chicken McNuggets. But even though we fundamentally get that a healthy diet is a well-rounded diet, I’m constantly surprised that it doesn’t occur to doctors that their investment portfolios should be well-rounded too.
When you look at the last 15 years and what investments (stocks, bonds, real estate) produced the best returns, the results are all over the place. They’re also not very predictable (this seems like a good place to note that past performance is not a guarantee of future results). You can get a visual sense for this HERE.
The big takeaway is that if you don’t have diversified investment accounts, it’s easy to 1 - miss out on high returns in sectors you aren't invested in and 2 - having a concentrated investment portfolio will not mitigate downside risk in the event that your investments under perform expectations, which happens every day.
Look at your portfolio. If all you have is big name stocks, you’re missing out on the potential benefits of small companies (which historically have performed better over time), international companies and real estate as well as “anchoring” investments like bonds. Likewise, if you swing for the fences by investing only in start-ups and small cap stocks, you’re in for a bumpy, risky ride.
Keep in mind that your practice is a part of your overall portfolio. If you own your practice AND have stock in Essilor or Hoya, I encourage you to think about diversifying away from the eye care market. Similarly, if you own your practice’s building, take that into consideration when determining how much to invest in REITs.
Again, your practice is a part of your portfolio—if the overall market declines in value, do you really want your non-practice investments to go down with it?
Having a professional (I’m partial to CFP®s) review your investment portfolio is a great starting point. They should do the following for you:
- Talk with you about your goals for your money and risk tolerance
- Make sure your investments are in the right places to avoid unnecessary taxes
- Identify the management and fund fees you’re paying as high fees will create a drag on performance
- If you have mutual funds, look at the fund versus its benchmark performance to make sure managers are earning their fees
Until next time, avoid that chicken nugget diet… maybe even incorporate a green vegetable or two?
FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY.
The views expressed here are as of the date of publication and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer (or recommendation) Hayes Wealth Advisors to sell or provide, or a specific invitation for any investor. Information herein may have been obtained from sources believed to be reliable, Hayes Wealth Advisors is unable to warrant its accuracy.
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