On Tips and Tipping (Part 2)

On Tips and Tipping (Part 2)

Everyone wants a tip. What’s the best way to make money?

Photo: Nick Stanley. Source: Life of Pix

Profitable investing starts with a plan. It starts with investors reviewing their goals, their fears, how much time they have, how much access to their money they need, and other circumstances. No one plans to fail, but many people fail to plan. And if you don’t know where you’re going, any road will do.

But once you have a plan, what do you do? Investing is a prospective activity. The results depend on things that we don’t know. What will the economy do? What will the Fed do? How will company managers respond? What conditions will change—politically, technologically, socially, geopolitically? We don’t know the future. The best we can do is make educated estimates.

The rational response to in the face of such uncertainty is to spread the assets around: different asset classes, different industries, different capital structures, different places in the economy. At a minimum, a portfolio should have securities that do well if the economy accelerates, if it keeps going the way has it has, and if it slows, or even contracts. There should always some assets that perform well under widely different scenarios.

In this way, diversification reduces risk. If different parts of the portfolio go in different directions, they cancel each other out and the volatility of the entire portfolio is reduced. It’s not a free lunch, but diversification is a cheap snack.

Planning comes first. But the second tip? Diversify.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:53+00:00 July 21st, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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