Moving homes, your retirement portfolio

After 12 years of renting, my wife and I decided to buy an apartment.

We finished the renovations (well it’s Israel, so do you ever really finish the renovations?) and Tuesday morning the movers came.

It’s important to note that the apartment we bought is directly underneath the one we have been renting, so our “big” move is basically going down 14 stairs.

Nonetheless, we decided that since we were moving downstairs, we would have movers take the heavy stuff, and we would move the rest of the clothes, dishes et al by ourselves. We have two weeks until we need to be out of our rental, so in order to put things in their proper place and not have to go through the whole “boxes everywhere” process, we felt this would be best.

As we go through shelf by shelf and drawer by drawer we see how much crap we have managed to accumulate over the years. Never-used wedding presents that were so bizarre they couldn’t even be re-gifted, numerous “beginning to count numbers 1-10” books (ever notice they all use farm animals), T-shirts vintage 1990 from running a Starbucks 8-kilometer run for the beach back in Seattle, suits that are in good condition but about six sizes to small that I kept in just in case I get back to my senior year of high school weight, and so forth – you get the picture.

I never would have imagined how similar this process is to investing.

Hodgepodge

Last week I met with someone who inherited a portfolio from his mother.

He was in his late 50s and starting to plan for retirement. He was looking to be much less aggressive and more focused on generating income. In the portfolio were some of the usual suspects, such as AT&T and shares of all the spinoffs that were known as the Baby Bells, some of which have gone bankrupt. There were some once highflying tech stocks from the Internet bubble, such as JDS Uniphase, which lost about 99 percent of its value; and the once-hot First Solar, which traded at $300 per share four years ago and now sits at $15. While reviewing the portfolio it was like a trip down memory lane of every hot sector on Wall Street over the last 40 years.

Well-know investment manager Rick Ferri sums it up: “Ask experienced advisers how many portfolios they’ve reviewed that lack philosophy, strategy and discipline and you’ll make them laugh. That’s because almost all portfolios lack these elements.

Investors say they’ve got them, or think they have them, but their portfolios don’t show it. They hold a smorgasbord of randomly collected investments that have no relationship to each other except that they all tend to be popular ideas from days gone by.

“An experienced eye will spot this trail of trends reaching back many years and can estimate each one’s purchase date. When I review a portfolio, I’ll often I say something like, ‘I bet you bought this emerging-market fund around the summer of 2007 and that commodity fund in early 2008.’ I’m right most of the time. How do I know? That’s when other undisciplined investors were buying the same funds!”

Clean up

I can’t stress enough the importance of getting your portfolio current. I don’t mean making the same mistakes of yesteryear and buy what’s hot today – that’s not getting current. Rather, investors need to sit down and figure out what their financial goals and needs are and then create a portfolio that will help get you there.

For retirees looking for supplemental income, a portfolio of some wind-power and camera stocks probably doesn’t make sense. So-called dividend champions – companies that have raised their dividend consecutively over decades – for example, such as Clorox, Proctor and Gamble or Walgreens – may be more appropriate.

Maybe a globally balanced portfolio is more suitable for you depending on your goals.

The point is that in order for your money to work for you in an efficient manner, you need to take the time to get rid of the junk, understand the purpose of the portfolio and then use a disciplined strategy that suits your own specific financial profile.

aaron@lighthousecapital.co.il
Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.