Making sound investment decisions

Summer is usually a volatile time for the stock market. After all, summer is vacation time and Wall Street high rollers love to head for the beach. Vacationing portfolio managers lead to significantly reduced trading volume, and thus greater opportunity for stock price swings as floor specialists look to match buyers and sellers. One of my favorite indexes to watch is the CBOEVolatility Index (VIX).

This index measures the market’s expectations of near-term volatility conveyed by the S&P 500 stock index option prices. In other words, it is a measure of uncertainty in the direction of the stock market. The VIX hit its 52-week low of 10.68 on Aug. 5, and 19 days later, it hit its high of 53.29 on Aug. 24.  The last time we saw the VIX in the 50s was in October 2008, as the markets were digesting the failure of Lehman Brothers.

You might be wondering why I am telling you all of this in an article on sound investment decisions. My first goal is to stress the importance of not watching your investments on a daily basis, as doing so will result in absolutely nothing good for your financial health. Money management professionals will always tell you to “sit tight” and “sit out” periods of extreme market volatility. Sell stocks when everyone loves the market and buy them when everyone hates the market.

My second, and far more important, goal is to recommend the use of investment professionals to help manage your financial assets. This is advice that is as applicable to a millennial as it is to a baby boomer, and it applies to a $100,000 portfolio as well as a multi-million-dollar portfolio.  Money management isn’t a sport where the amateur can win — the deck is stacked against you.  Emotions can play a huge role when managing your own money.  I just had a conversation with a longtime friend who managed a large national brokerage unit. He told me he even advised his financial advisers to use their colleagues to manage their personal accounts.

So how does one go about selecting a financial adviser?  How do you know whom to trust with your money? Do you put all your eggs in one basket, or should you select multiple advisers?  These are all questions that might run through your mind.

Let’s start with the basic questions that should be asked of any adviser: Are you licensed by the SEC? What do you have in terms of professional credentials or certificates? How do you charge for your services? And what is your investment approach — mutual funds, separately managed accounts, ETFs or individual stocks? There is no one correct answer to any of these questions, but the way the adviser answers will give to you a sense of his or her professionalism and will help begin the process of building trust. If you are married, or have a long-term significant other, it is always preferred to include your partner in these interview sessions. Doing so gives you another set of eyes and ears, and it also begins the process of trust and consensus building.

You will notice that I keep coming back to the word trust. Like your relationships with lawyers, doctors or accountants, your relationship with your financial adviser should be rooted in trust; they are, of course, “entrusted” with your financial future.

Beyond that key ingredient of trust — and the professional experience represented by credentials and an investment track record — make sure your adviser has access to the latest in financial planning tools. A reputable adviser should be willing to share sample financial plans and have ample tools to match your individual investment risk tolerance and investment objectives with a well-balanced investment strategy.

In southern Beaufort County, we have a broad array of financial services companies, large money center banks, medium and small banks, major stock brokerage firms and independent investment advisers from which to choose that one individual or group that matches your personal needs.

With the experts calling for continued volatility over the foreseeable future, do yourself and your family a favor — act now.

Elihu Spencer is a local amateur economist with a long business history in global finance. His work has been centered on understanding credit cycles and their impact on local economies. The information contained in this article has been obtained from sources considered reliable but the accuracy cannot be guaranteed.