Investing with Purpose – 3 Mistakes to Avoid

Dalal Salomon Financial Advisor

April 4, 2020

pens, clipboard, calculator and graphs printed on paper atop a table. Blurred building shape in the background.
Investors today are increasingly measuring an investment’s merit by its ability to help them meet their financial goals. Whether that is to generate an income stream, preserve capital, send children to college or grow assets within a certain time frame and risk profile. For most investment managers, this means the bar has been raised.

Salomon & Ludwin is meeting the challenge by offering investment strategies that set their sights beyond benchmarks, instead of aiming for the outcomes. The real results. We believe that this is what matters most to our clients.

Keep reading to discover the top 3 investment mistakes to avoid.

Mistake #1 – Not understanding that there are better ways to Benchmark

The fact is, market benchmarks were not conceived to specifically address investor challenges. That’s why outcome-oriented strategies are managed differently. They are not limited to a single broad-market benchmark. They can employ more tools in aiming to meet their underlying objective. Your objective. Earning them the moniker “unconstrained.”

The philosophy behind outcome-oriented investing is a simple one: Put the investor first. Consequently, outcome-oriented strategies aim to solve a specific, quantifiable problem, recognizing that people invest to meet day-to-day and long-term financial requirements. Not to beat a market average. The traditional approach whereby investors would essentially choose a benchmark that may (or may not) match up with their desired needs is making way for a new kind of thinking.

Mistake # 2 – Changing your Benchmark based on “What’s Doing Best”

We find that many investors want equity upside, but they are not equipped to weather the downside.

When the stock market is strong, investors tend to use the S&P 500 as their benchmark and they expect to do as well. This holds true even if a percentage of their total investment portfolio is not even in the market. For example, if an investor has an allocation of 50% Stocks and 50% Fixed Income, it’s probably because of a combination of things: age, risk tolerance, income needs, etc. However, when the stock market is doing well, they are disappointed with their own returns. In situations like these, it’s easy to understand why statistics show that at market highs, investors move out of fixed income and place more of their assets in stocks.

When the markets are not doing well, think 2008, investors no longer want to use the S&P 500 as their benchmark. They will gravitate to a more conservative Benchmarks such as Treasuries. Again, statistics show that at market lows, so many investors will sell their stock market positions and move those assets into fixed income or cash. At the worst possible time!

This cycle of Buying High and Selling low is a recipe for failure. The fact is, without good counsel and a logic-based strategy, many investors fall prey to the emotions of fear and greed.

Mistake #3 – Not Having a Logic-Based Strategy

We understand how easy it is, especially in volatile markets, to fall prey to fear and greed: to buy at market highs and to sell at market lows. Our patented TriggerPoint Logic is a buy lower sell higher strategy with an allocation to stocks versus fixed income that is completely customized to each investor’s goals and risk tolerance. Our sell triggers allow us to lock in gains as markets become over-valued (based on the underlying movement of that market and the formulas we have pre-defined in our logic).

Those gains are set aside to be used to buy back into that same market at discounted prices (based on the underlying movement of that market and the formulas we have pre-defined in our logic). We call this “Opportunity Cash” because down markets are just down markets unless you have the cash to buy when everyone else is selling, then, it becomes an Opportunity.

Simply put, with a strategy as fluid and reactive as this, comparing it to a stagnant benchmark would be an exercise in futility. It would serve to disregard the basic premise of the strategy. Which is to help mitigate negative compounding.

Turning Lessons into Strategies

At Salomon & Ludwin, our strategies are driven by purpose. Not, by benchmarks. Investors are now keenly aware that doing better than a benchmark and, at the same time, being down 30, 40, or 50% is life changing. More important is the ability to mitigate risk and maintain a lifestyle without severe setbacks. When markets are strong, it’s exciting to participate. At the same time, those same markets will correct and sometimes, correct severely. What’s your strategy? Discipline or chance?

DisclosureThis information is intended for educational purposes only and should not be construed as advice. You should discuss your circumstances with a qualified financial professional prior to making any decisions.

More Client Resources