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Chalk Talk: January 2014

“Surprise is the mother of panic. Don’t be surprised, be prepared.”

– Owen Mulhern, IV CFP®


Opening the line of communication

We talk to you frequently about the importance of diversification, having the discipline to avoid bad behavior, and the benefits of low cost and tax efficiency in investment plans.  These are the most important determinants of the outcome of investment performance over time.

Yet we don’t as often get the chance to share with you some of the more “under the hood” discussions and debates that we have at Financial Coach.

I want to take an opportunity to communicate with you a couple of items that came out of our most recent Investment Committee Meeting held on October 20.  These meetings are held quarterly, during which our entire team convenes to talk specifically about the investments.  We ask ourselves:

– Are the investment strategies performing as we expected?

– Are there any areas, no matter how small, in which we can make improvements?

This is the primary purpose of these discussions –  to put our collective heads together and figure out if there is anything we can do a bit better.  Doing a lot of little things right will lead to positive outcomes for the big things.

Our Investment Committee covered a lot of ground, reviewing the performance of the various investment strategies, the role and appropriateness of each fund in the investment accounts, and ideas for tweaks and changes that would deliver benefits to our clients over time.  We also talked quite a bit about taking advantage of recent volatility in the markets by tax loss harvesting in taxable accounts.  We have already done quite a bit of this for some clients and plan on continuing to do so anywhere there is an opportunity that makes sense.  This is an example in which volatility on the downside is good!

Here is an example of two changes that we’ll make as a result of our latest meeting:

– We are adding a Dividend Growth fund to the Growth and Growth w/ Income accounts.  There are a couple of very low cost index based funds whose holdings are focused on companies that have a track record of increasing dividend payments over time (as opposed to just having a high dividend payout).  We believe that incorporating “Dividend Growers” will nicely complement the other traditional growth oriented funds, while also providing added diversification benefits.

– After spending a lot of time researching and considering the role of non-US bonds, we are in agreement to begin including a Total International Bond fund in all strategies.  We currently use this fund in both Income with Growth and Growth with Income, and we will now begin including it in both the Growth and Aggressive Growth models.  Perhaps surprisingly, the International Bond asset class is larger than US Bonds, US Stocks, or International Stocks.  As such, we think it’s completely appropriate to include the category in every diversified portfolio.

We have great confidence in the investment plans we have recommended to you, and want to remind you that we devote constant attention and careful thought into implementing your investment strategy as effectively as possible.

Moving forward, you should expect to hear from us at least quarterly on the subject of investments, and as always, feel free to contact us with any questions or concerns.

As always, thank you for your trust and confidence in us. Your feedback is always welcome.

Michael Traynor CFA®

Chief Investment Officer