Dan and Richard Answer Five Questions About Investing

We posed a few investment questions to Dan Danford and Richard Salmen of Family Investment Center. Both men have decades of investment experience and both hold Master of Business Administration degrees. Both are CFP® professionals, and Salmen is a Chartered Financial Analyst®. Salmen is President of Family Investment Center and Danford is Founder/CEO.

Question: We keep hearing about financial doom and gloom. What should investors do?

Answer: “Look, our perspective is a lot different from most other firms. We are investment advisors, choosing investments on behalf of clients. We hire quality managers from a variety of economic sectors and we deliberately seek different investment strategies. Recently, portfolios diversified in this manner have done better than many other stock investors. That doesn’t mean they’ve made money in this environment – it probably means they’ve lost less than others. Important risk rules stay the same as always. Buy good things and diversify.”

Maybe people should sell stocks now and wait for better times to re-invest.

“No, but it’s a great time for rebalancing portfolios – our advisors are working hard to make beneficial changes. There are still some people who claim they can jump in and out of markets to make money. There’s very little hard evidence to support those claims. Most of us can look back on times where we thought we could see what was coming. But these incidents are an illusion, sort of like an optical illusion. In truth, our mind often reframes the past to fit the present. In other words, hindsight makes us feel much better than we really are. Despite claims, few market ‘timers’ achieve consistent success. If, despite these facts, you’re inclined to try and time the market, do so by buying some new things, not selling old ones. The odds in your favor are much better.”

Many people are very confused today. If market timing doesn’t work, what does?

“No wonder they are confused. There is some science to investing. Some people, including some professionals, talk as if it’s a giant casino, a big game of chance. And, because we can’t predict the future, there is an element of that in short-term performance. But certainty is much higher in longer time frames. Investment professionals, teachers, even students, have been studying investment markets for decades. There is a substantial body of knowledge about things that work and things that don’t. Sadly, many things that work are fairly boring and lack sales appeal. You don’t usually see large pension or endowment funds straying from the basics. That’s because they’re more scientific about strategy and approach. They are less likely to invest by whim or buy from a sexy sales pitch.”

What should we learn from these past few weeks?

“The past month’s investment lesson is pretty clear. You should always invest as if a market decline is imminent. Because, in fact, it is. That’s part of the stock market. Declines and recoveries happen with blinding speed and at unpredictable intervals. In order to benefit from long-term compounding, you’ve got to be there through it all. Hard as it is, you’ve got to own a variety of good investments through good and bad times.”

Any final words or ideas for today?

“Studies show that asset allocation is extremely important to long-term success. The right mix of stocks, bonds, and money market funds plays a much bigger role in performance than most people suspect. Investors should carefully consider the right allocation for their situation – both risks and rewards – and work to maintain that mix over longer periods. The worst thing to do is panic because of bad current conditions. Corrections are part of the stock market, and that’s why bonds and money market funds should be part of your long-term mix. Don’t let fear cause you to make bad choices or abandon good ones.”