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Precision Wealth Long Term Investing Philosophy

Doug Jones • May 29, 2020

When we reference Long Term or LT investing at Precision Wealth Strategies we are specifically speaking of investment strategies and models that are intended to be used for the portion of a Client’s overall portfolio that they don’t anticipate needing to draw upon for 10 years or longer.

Using history as a reference, generally speaking when you have 10 years or longer to remain invested, then investing primarily in equities (ownership of company stock directly, or funds containing the stock of a diversified basket of companies) has resulted in a larger return. Restated more concisely, LT investing within our philosophies generally refers to funds that aren’t needed for 10-years or longer, and therefore have time to take advantage of the potential upside that is expected from equity investments over a long time horizon.

Does this mean that every 10-year period is positive? Unfortunately, no…for instance, at the end of the nearly 22-year period from June 1, 1997 to March 9, 2009 (see chart) the S&P 500 was essentially flat due to the drawdown of the two recessions during decade of the 2000’s (grey shaded periods). At Precision Wealth Strategies we have developed a detailed philosophy around the market cycle to help combat this risk (see Market Cycle of Emotions).

Should every LT portfolio be the same for every person? No, every individual or family is unique and will be in a distinctive stage of life. For example, an individual in their “Accumulation” (building up their savings) years should invest differently from someone in their “Distribution” years (drawing from their savings).

In accumulation, we will be adding to the portfolio. This allows us to buy in when the market experiences dips, taking advantage of Dollar Cost Averaging to help smooth the volatility and improve long term results. Does this allow an accumulator to be more aggressive (higher % in areas like small cap)? We believe yes.

There are other dynamics to consider. Are you someone who is comfortable with a more focused portfolio preferring high conviction around a smaller number of holdings? Or is your preference to lean toward a more diversified portfolio preferring high dispersion to potentially smooth the ride? There are times in which both will win, but at different times.

Transparency: The Key to Our Strategy

As we build out a LT portfolio, we try to maintain a philosophy of transparency. What we mean by transparency is that each model or strategy within your portfolio should have a defined purpose and should be measured against that purpose. We want to avoid your account holdings becoming muddled together in such a way that you can no longer clearly evaluate performance and measure success. For this reason, we at times will establish multiple accounts within your LT portfolio.

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Macro Economics, Predictions, Forecasters & Inflation

By Darin Robinson • 05 Aug, 2021

Wait . . . Inflation – what is that? “For a piece of information to be desirable, it has to satisfy two criteria: it has to be important, and it has to be knowable.” – Warren Buffett

End of Q1 Update: Patience, Perspective & Precision’s Process

By Darin Robinson • 07 Apr, 2020

There is no precedent, at least not in modern times, for what is happening. Beyond the enormous human toll, the abrupt cessation of significant chunks of economic activity, not to mention daily life, these experiences have likely not occurred in our living memory. Adding to the sense of doom: for an industry built on data and forecasts, there are few if any historical examples to provide context. That said, as fiduciaries we need to use what information we do have, while acknowledging what is unknowable, to help investors as best we can. Internally we have been overlaying past significant market downturns to see what we can disseminate.

Precision Wealth Market Cycle of Emotions Philosophy

By Precision Wealth Strategies • 31 Mar, 2020

Investment Markets and the Economy at large typically follow a cyclical business pattern that moves up and down like a sine wave as it trends upward over time. This is a cycle that has weaved its way through many expansions, peaks, recessions, and troughs that can be clearly seen in the numerous booms and busts of the 20th century. In fact, some experts estimate that since 1929 there have been 28 distinct market cycles. Expansionary periods generate substantial optimism, while recessionary periods play into our fearful side. This range of emotions can work to an investor’s detriment if a long-term perspective is not maintained. This outlines the need for two specific disciplines to be applied to your investment approach. First, a stay the course discipline that includes a long-term view with an understanding that downturns will occur as part of the natural cycle. And second, a disciplined review of where we sit today within the market cycle. Said another way, our investment approach should be informed by a continual review of where we believe we are within the cycle, leading to a grounded perspective regarding where we should potentially be overweight and underweight. It is important to note that an opinion as to where we are in the cycle should not drive whether or not to be invested, but rather how to prudently be invested given our perceived location on the curve.