Financially Smart at Work – Not at Home

By Mary Welch

Try to think about your asset portfolio as a plate of food. It is essential to have all the important food groups as well as fun, purely decadent items such as desserts or sweet tea. And, you don’t necessarily want the same foods or proportions throughout your life. If you’re planning to run a marathon, increase the carbs. Losing baby weight? Maybe lessen your chocolate intake. It all depends on your current situation but what is important is that your body has access to everything it needs.

A healthy diversified portfolio isn’t unlike a healthy diet. A well-rounded portfolio fits what you need at any particular time in your life, and like your diet, it can be changed as the situation alters.

“A well rounded portfolio to me is one where the investment represents all areas of the equity market (value stocks, growth stocks, domestic stocks, international stocks, small/mid cap stocks) and all areas of the fixed income market; all at different credit levels and maturity levels, domestically and internationally,” says Debbie Riney-Smith, SVP, private wealth advisor at SunTrust Investment Services.

“I’m a huge believer in diversification. In fact my husband and I met with our financial planner recently who talked to us about going into emerging markets and I find that kind of exciting,” says Ann Huff, co-owner of home stores Huff Harrington Fine Art and Huff Harrington Home. “We also like to play the currency game and find that when one currency dips the other goes up, so it’s a great opportunity to buy or sell.”

But to figure out what should be on a woman’s financial plate, Riney-Smith says a meeting with a financial advisor is in order to determine what the woman’s goals are, how she likes to spend her personal time, her vacation plans as well as delve into her investment history.

“We need to know their net experience, any investment biases, how they feel about market volatility and what is their intention for the money they have,” she says. “There really are so many discussions we like to have prior to putting anything down on paper as an investment recommendation.”

Among the important questions are: Do you have savings buckets designated to fulfill a different, specific goal? Are they tax sensitive? What are your additional income needs relative to your annual income.

A good starting place is a 401 (k) and from there, consider starting a dollar cost averaging (DCA) program and putting a set amount of money into a mutual fund or other investment on a regular basis. The strategy is that by investing the same amount, regardless of market conditions, you will have developed assets that were paid for over time rather than in lump sums and that price highs and lows will average out so that the price per share is manageable.

Like a diet in reverse, you will start seeing your investment portfolio grow, which we hope, will spur you to keep on going.

Although common wisdom may suggest that it’s better to invest money in riskier financial avenues when you are younger and more secure investments as you age, Riney-Smith says that’s not necessarily the case. “There are variables that are involved – total asset size versus total annual income needed,” she says. “Are there heirs to leave money to? Different people define risk different ways.”

She has 25-year-old clients who are risk adverse and 70-year-old clients who want to “do a lot of stock picking, so it really is a personal preference. We can minimize risk for all client types by the diversification of the portfolio.”

Another important ingredient to a balanced portfolio is cash. Cash needs to be set aside in case you and/or your spouse lose your job and have less income coming in. “Many investors want more cash than just what is needed to live on, to hold as the conservative piece of their investment portfolio,” says Riney-Smith. The downside to a heavy cash position is that the money doesn’t grow; it just sits there. “But many clients are OK with that because they know it will always be there holding its value.”

Many believe that a person should have the equivalent of six month’s income stowed away in cash so that if something goes wrong, like losing a job, you can live and pay your bills for a little while.

Riney-Smith says that, while that’s not a bad idea, the amount of cash on hand depends on the client’s age, risk profile, investment experience and the income needs of the portfolio. A younger person may only need two to five percent of their portfolio to be in cash, because theoretically they have a longer time to build up cash. But, if they are concerned about volatility maybe having more cash will help them sleep better at night.

Real estate is another tried and true variable, although with the housing crash it may not seems a sure-fire an investment at the moment. “Real estate is typically a nice, income-bearing, defensive position for a portfolio. However, considering the housing market we’ve experienced where real estate has performed opposite of what it has done historically, I would recommend only certain levels of investments in real estate.” Again, how much of your portfolio should be in real estate depends on your particular situation.

Working with a professional who can manage and tweak your portfolio to make it more suitable to your changing needs is important.

“Well-rounded portfolios weather volatility better than those that are not diversified among different investment types,” says Riney-Smith. For example, in 2008 when the stock market was down 37 percent, if a portfolio had at least 25 percent exposure to fixed income – such as stock dividends or rent from real estate — their portfolio would have only been down 26 percent – quite a difference.

Huff, who also points out that fine art is also an investment, enjoys the more exotic investments as well. “We also like to play the currency game and find that when one currency dips the other goes up, so it’s a great opportunity to buy or sell.”

And, now that you have a robust financial plate, remember don’t waste it. Work with your advisor to get the best tax advantages. There are all kinds of investments and investment strategies that can help you keep more of what you make by being tax-aware.

In fact, Huff offers some overall advice from her own experience. “I guess we approach the financial part the way we do with everything else in our lives – it’s all about the mix!”