What would you do now if you knew we were soon heading into a recession? Do you feel that you have the right team with the right incentives and skills to guide your portfolio (and your emotions) through the bad times? Here are some questions to ask yourself so that you can decide if you are adequately prepared.
Who’s with me?
Am I with the right firm? Am I with the right advisor? If your assets are managed by a brokerage firm like JPMorgan, UBS or Morgan Stanley, think of this one word: Suitability. Legally, brokerage firm advisors are held to a suitability standard which means they cannot knowingly sell you toxic investments (they are not prohibited from collecting high commissions and other fees that erode investor returns). If you’re looking for something better, an advisor who must act in your best interest, look for the Fiduciary standard which is a regulatory mandate of independent firms like Osbon Capital Management.
Do I have the right allocation?
Do I know the history of my allocation? How did this particular asset mix perform in 2008? How much volatility can I expect in good times, and in bad? In a given scenario how much can I reasonably expect to lose? Am I comfortable with this? All investments have a degree of knowable risk and return. It pays to know where your investments stand.
What am I paying and why?
Is my broker winning when I lose? Brokerage advisors sell investment products manufactured by their own firm or others for a commission, which can include internal costs and fees that are difficult to find and define. That’s in addition to their management fee. We charge one fee for assets under management and pass the savings to your bottom line.
Don’t let a loss go to waste
Are my losses used to cancel out gains? This practice is known as tax loss harvesting; we call it anti-taxing and it’s essential in a market downturn. We do this for all taxable accounts by selling investments that have lost money and buying their near-identical twins. Swapping one emerging market investment for another locks in your loss without changing your allocation.
Time to rebalance?
Is my allocation maintained during big market swings? Discipline means holding steady on your asset allocation in good times and in bad. Remember this discipline with one of my favorite investing phrases, “sell out of euphoria, buy into fear.” We pare down investments when they get to be too large and spread those assets into other areas that are flat, negative or “unloved.”
Is 2008 coming?
Is there a recession coming? There will always be recessions, many minor and a few major. We’re not predicting one and never will. But know this: there will be no warning bell when a recession does start, no polite intermission that allows you to get prepared. We can help you prepare for all kinds of markets and economies.