Most of the time, investors focus on actively considering options to add to their portfolios. Will this investment offer a better return? Will that choice balance out their risk a little better? It’s not as common to say, “Hmm, which investments should I avoid right now?”
Yet saying no to some investment choices can actually be just as important as saying yes to others.
If you’ve got kids, a good analogy is when your child barrages you with multiple requests: “Can I get an Instagram account?” “Can I have a new iPhone?” “Can I go into the city by myself?” Peers and the media bombard kids to buy and do all the latest “stuff.” Similarly, friends, colleagues and the media can pressure individual investors to look at the “latest” investment choices. Gold? Emerging market bonds? Commodities? They sound great: Why not try them all?With your kids’ requests, you obviously know that everything they ask for isn’t necessarily good for them. As a parent, you need time to research and understand what they’re asking about, and how it might impact them. The same is true with investments. Just because everyone else is investing in these asset classes doesn’t make them right for you. It’s wise to evaluate new-to-you options one at a time, carefully, to be sure they make sense.
Often, they don’t.
Every two weeks, RegentAtlantic’s investment committee meets to carefully evaluate investment options that have been brought to our attention by our Wealth Advisors, analysts, colleagues in the industry—or even our clients. Recently, we said “no” to adding three potential offerings to our client portfolios: Commodities, emerging market debt and merger arbitrage.
Some of the reasons for saying “no” to these options are fairly technical. Suffice to say that we didn’t think they offered a generous enough return for our clients, given their risk.
Thumbs down on EM bonds
Emerging market bonds are a good example. Now, to clarify, we’re bullish on investing in emerging market companies overall. But investing in their debt (bonds) as opposed to their equity (stocks) is a completely different matter.
On the surface, emerging market bond rates can look pretty attractive. But when you subtract each country’s inflation rate from the bond yield (which you have to do to get an accurate earnings assessment), the returns on these bonds only average 1.7%. Similarly rated (BBB) U.S bonds are currently returning about 2.5% after inflation. The bottom line: The EM bonds aren’t worth the risk for such a low return.
At RegentAtlantic, that’s a fairly basic example of the kind of analysis we do every day. We keep our investment committee extremely busy researching all the options the market offers.
If everyone else jumped off a bridge…
Another investment consideration is that it’s usually not financially wise to “follow the herd.” When your neighbors and coworkers are excited about investing in a particular asset class (remember dot-com companies?), that’s usually a good indication that you don’t want to invest in them. They’ve become too popular by the time you hear about them in the popular press or from your neighbor. That usually means their prices are already too high, or they haven’t been carefully researched.
So if you’ve ever wondered why your RegentAtlantic portfolio isn’t invested in all the “latest” investment options, talk to your Wealth Advisor. He/she can explain what assets we’ve considered in our latest investment committee meetings, and how our careful decisions are safeguarding your money.
“No” can sometimes be a pretty positive word.
Important Disclosure Information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This presentation is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.