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MICHAEL J. DONNELLAN King Financial, Inc.
SMART INVESTING STRATEGIES Risk analysis and time horizon investing is all about planning. You need to think about your goals, whether it could be buying a house, funding college, or planning for retirement. Once you have done that, investment selection is based on the amount of time you have until the goal must be funded. When investors have longer time horizons, they generally take on more risk. This is because the extended amount of time allows the market to recover from a downturn. As the funding date approaches, assets are shifted to more conservative investments to reduce the risk of market-related losses derailing your strategy. We have had many discussions with clients closing in on retirement who think they automatically need to move to conservative investments, but the reality is that the retirement date is not the end goal. Life spans have increased and retirement planning should look forward a number of years or even decades. According to the Social Security website (www.ssa.gov/ oact/STATS/table4c6.html) the life expectancy for a male is 81.58 years and 84.56 years for a female. That’s a lot of time for your investments to continue to work!
12 | Official Publication of The Ohio Landscape Association
DIVERSIFICATION The best strategy is to stay the course in respect to diversification. If the markets look a little too expensive, and other investors seem “fat, dumb and happy,” get defensive and move some assets into cash or more conservative investments. When everyone is panicking in a declining market, look to buy. Bottom line, greed and fear can help investors judge market fluctuations. Make sure your assets are properly diversified, though. It is sometimes advantageous to be overweight or underweight certain sectors at different times, but they should be periodically reviewed to keep a reasonable balance. I remember almost 20 years ago, when interest rates were declining, home builders were among top performers, but then consistently hit new lows when rates started to rise. Without rebalancing, that portfolio was overweight in your continued on page 14 portfolio, so the losses felt worse.
