Do You Need a GPS for Your Investments?

Suzanna De Baca -- Expert Business Source, 6/5/2007 6:48:00 AM

Do You Need a GPS for Your Investments?

Having the right equipment is a key element of getting a construction or building job done successfully and safely, but do you take the time to find and use appropriate or innovative tools in other areas of your life, such as your finances?

Many lessons from the construction jobsite are equally applicable in your investment portfolio. Take McAnich Corporation, a West Des Moines, Iowa-based contracting firm which is “at work on the largest grading project in Missouri Department of Transportation History,” according to Curt Grandia in Massive Excavation, a recent Midwest Contractor article. McAnich Corporation uses Global Positioning Systems (GPS) in some of its largest excavation equipment, an innovation that has saved the company a tremendous amount of time and money. The company’s Chairman/CEO, Dwayne McAnich, “pioneered the use of GPS in earthmoving,” says Grandia, explaining that the combination of force from excavation equipment coupled with the finesse of a GPS allows the equipment operators to move through rugged terrain without having to stop constantly to set stakes and check grade.

The securities markets, like rocky terrain, are often difficult to navigate. They are also constantly changing, so a good plan at the beginning is crucial. Many of us plow into our investing and forge ahead without having the right measurement tools in place. We may state that our goal is to increase our investment portfolio, so we steer towards investments that will hopefully offer great returns. But once we’ve put our portfolio together, how often do we stop and measure our progress, and even more importantly, how often do we recalibrate to get back on track?

Here are some tips and tools to keep your investments going in the right direction:

1. Have a Roadmap – Know what you want to achieve with your investments, setting realistic return goals and having a good idea of how much risk you’re taking to achieve those returns. Many websites have good asset allocation calculators that can aid you in determining the right investment mix for taxable or tax-deferred investments. Your financial advisor can also help you come up with a mix of investments that is appropriate for your age, time horizon, tax situation, and risk profile. Most retirement plan administrators have toll-free numbers where you can call and get help with basic planning and asset allocation.

2. Check Your Progress – On a quarterly basis, check your investments to see if they are performing correctly against the appropriate benchmark. There is no need to change investments this often, but you should keep you eye on them.

3. Rebalance – If you’ve set an allocation and after a period of time one investment is way up, you’ll probably be tempted not to mess with success. But having one investment overweighted in relation to your original plan skews your roadmap. For example, if you said you wanted 10% in a Small Cap Fund and that fund has great returns, at the end of the year your 10% will have grown to 15% or 20% or more. You may be in love with Small Cap, but having 20% of your portfolio in this asset class creates a very different asset allocation than you originally stated you were comfortable with. A wise investor would sell of some of the Small Cap to get the allocation back to the 10% and reinvest the proceeds proportionately in the other investments in the portfolio.

4. Replace Underperformers - If a fund or stock underperforms for more than a year, or dips down drastically in a short period of time investigate why. Was that fund down or were the markets or other investments in that market segment? Was there a change in the management or other aspect of the investment? If something has changed or that investment is no longer doing what it was supposed to be doing, replace them if necessary.

5. Understand Performance – It is important to gauge how your total portfolio is doing in addition to the individual components. Measure your overall performance at least annually against your original goal and in the context you set that goal. Look at your performance on an after-tax and after-fee basis if possible, so that you can see the bottom line.

6. Reevaluate Your Map from Time to Time – Your life may change and if it does, your investments may need to change. Getting married or having a child may alter your risk tolerance, just as nearing retirement may also call for a change in your investment mix. The plan you put in place years ago may not be appropriate for your current needs and objectives. Updating your plan regularly will keep you focused on the results you need.

Suzanna de Baca is President of Private Capital Solutions Group. She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667. Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.

PAS is a member NASD, SIPC.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.