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5 Investing Lessons Learned So Far in 2013

English: Markowitz-Portfolio Theory, Investmen...

The first half of 2013 is in the books.  It’s been a good year in terms of the domestic stock market; other areas of the markets have been mixed.  The second quarter saw declines in most fixed income categories, real estate, and in many international stock categories including emerging markets.  Commodities and precious metals have also suffered setbacks of late.  As an investor this is a good time to take stock of your investments and more importantly any implications for your financial planning goals.

When reviewing your portfolio keep these 5 investing lessons learned (and relearned) in the first half of 2013 in mind.

Components of a diversified portfolio can lose money 

Diversification and balance are generally good characteristics for an investment portfolio.  However it is not uncommon for some components of a well-balanced portfolio to lose money over a quarter or longer.  Case in point during the second quarter of 2013 virtually all fixed income categories lost money.  Of the major bond investment styles high yield led the way with a loss of 1.4% for the quarter while TIPs suffered the worst loss at 7.0%.  The fact that some components of a diversified portfolio might suffer a loss at various times should not come as a surprise as one of the goals of diversification is to include some asset classes with a low correlation to other portfolio holdings.

Gold doesn’t always glitter 

Gold, touted by many as the ultimate safe haven investment really took it on the chin during the second quarter.  The main Gold ETF (ticker GLD) lost 22.89% in the second quarter and is down 26.48% for the first six months of 2013.  This brings the five year trailing return of the ETF down to 5.44% compared to 6.92% for the S&P 500 ETF (ticker SPY).  Gold may ultimately stage a major comeback but these results fly in the face of the doom and gloom folks who tout Gold and other hard assets as the ultimate investment solution.  A college economics professor once told the class that investors in Gold had not progressed past Freud’s anal stage of development.  That may or may not be true but like anything else a portfolio that is top-heavy in Gold and precious metals may not be the answer.

The stock market can go up even if Apple doesn’t 

Apple, the largest component of the S&P 500 index, lost 24.42% over the first six months of 2013.  However the index still gained 13.82% over the same period of time.  Apple is also a large holding for many large cap mutual funds and ETFs.

The rally in bonds may be over, or maybe it isn’t 

As I mentioned above, the second quarter was dismal for bonds of all types.  Bonds and bond mutual funds have enjoyed 30 years of mostly continuous gains, in large part due to a favorable interest rate environment.  Some say the favorable period for bonds may be over, but others say investors who have yanked $ billions from bond funds may be overreacting.  Time will tell.  One thing is certain to me is that this is a good time to evaluate your fixed income investments and to look at the duration risk that you are taking.

Investors are enthusiastic when things “feel good” in the markets 

As typified by an infuriating commercial for John Hancock showing several couples saying they need to get back into the markets now, more investors have been finally feeling good about getting back into the markets after the market drop of 2008-09.  It’s easy to invest when things feel good; it’s profitable to invest when they don’t.  If you are an investor just getting back into stocks now you need both a good financial plan and a financial advisor who knows what he or she is doing.

Six months into any year is a good point to review your investments and your progress against your financial plan.  Given the wide variations in performance among various asset classes this is an especially good point to review your situation.

Please feel free to contact me with your investing and financial planning questions.  Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.  

For you do-it-yourselfers, check out Morningstar.com to analyze your investments and to get a free trial for their premium services.  Please check out our Resources page for links to some additional tools and services that might be beneficial to you.

Photo credit: Wikipedia

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  1. My TIPS allocation has certainly been hit hard, but that’s all part of the game. It’s been nice watching everything rise over the past year or so, but it’s important to remind ourselves that those periods are temporary. I saw someone write recently that there were “signs of trouble” in their retirement accounts recently. That statement tells me that there are “signs of trouble” with their investment outlook. You can’t expect everything to rise all of the time. Expect downturns, be ready to rebalance, and stick to your guns.

  2. Roger Wohlner says

    Matt thanks for your comment, very well said!

  3. These are great lessons to be learned. I’ve enjoyed the first half of 2013, let’s just hope it continues for the rest of the year. I think your first point is tough for people to understand. The point of a diversified portfolio is to reduce risk, so it’s pretty common for parts of your portfolio to be down at any one point. You just hope that over the long run, your returns are consistently solid.

  4. Some food for thought:

    1. Nine out of 10 people in finance don’t have your best interest at heart and even worse are clueless.

    2. Don’t try to predict the future but understand the facts like no one. Read, learn and start discerning facts from propaganda.

    3. Saving can be as important as investing.

    4. Tune out the majority of news. All baloney worth nothing but divert your attention.

    5. Emotional intelligence is as important as classroom intelligence. High stakes investing has much to do with nerves of steel as market savvy.

    6. Never talk about your money. Smart people know better.

    7. Most financial problems are caused by debt. Debt can be only be good for you when you can borrow at insanely low interest rates.

    8. Forget about past performance. Change is the only constant out there.

    9. The perfect investment doesn’t exist.

    Now go and make a killing…

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