You Can't Have Everything . . . Where Would You Put It?

BY: Jeff Supple

Steven Wright’s quintessential, dry-witted line about excess probably doesn’t do much for most of us, other than cause a chuckle. We probably aren’t looking for a deeper meaning or applying it to our everyday life. However, I thought it might be interesting to examine a few well-known idioms/quotes/sayings and explore how we might use them to make practical applications to our personal finances.

Buy Low, Sell High

Oft-repeated, but not always followed. The first inclination of many, upon seeing their 401(k) balances drop by thousands of dollars in December 2018, likely wasn’t put more money into the stock market. That very act, though, would have benefited them during the bounce we’ve seen in January and February. Having some type of rebalancing mechanism in your investment portfolio that sells out of higher-performing asset categories and reinvests in lower-performing ones is a great way to implement this strategy. Most retirement plans have asset-allocated funds or retirement target-date portfolios that do this automatically.

Be Fearful When Others Are Greedy…

…and greedy when others are fearful.

Warren Buffet has made a fortune living by this philosophy. Be careful of following the herd, which often leads to bubbles (e.g., the dot-com craze of the late ‘90s). The fear of missing out is powerful, but by the time “everyone” knows about the next sure thing, the money has probably already been made. Alternatively, don’t be afraid to take a contrarian view and look at investments that may have fallen out of favor for non-fundamental reasons.

A Bird in the Hand Is Worth Two in the Bush

Lock in a more certain outcome with a lower “yield,” as opposed to chasing higher, less predictable returns. The makeup of your portfolio should contain a mixture of different asset categories, such as bonds, which historically have returned less than stocks, but for which results vary much less. Obviously, the mixture is dependent on such things as your age, risk tolerance, etc.

Penny-Wise, Pound-Foolish

Think about someone who drives out of their way – using up gas – to save a couple of cents on their next gallon. In the investing world, fees on mutual funds (i.e., expense ratios) are a factor, but not the only one, in determining performance. Mutual Fund A has an expense ratio of 0.65% and a 10-year return of 8% annually. Mutual Fund B has an expense ratio of 0.90% and a 10-year return of 9% annually. On a $10,000 investment, you would have paid $250 more in fees on Mutual Fund B, but at the end of 10 years, you would have a balance $1,685 greater than Mutual Fund A.

For more sound financial advice, call State Bank of Cross Plains Wealth Management Team at (608) 826-3570 today.


Jeff Supple

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