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Would you accept portfolio advice from William Shakespeare?

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“In giving advice seek to help, not to please, your friend.” ― Solon, (638 BC–559 BC), Greek lawgiver & politician

You are probably wondering what on earth William Shakespeare, the highly renowned English poet and playwright, has to do with dispensing portfolio advice. After all, he was around more than four centuries ago. Let the short story unfold.

Investors think of portfolio management strategies as modern day creations. Particular emphasis is directed to findings of the last fifty years. This area of study is commonly referred to as “Modern Portfolio Theory,” or “MPT” for short.

For example, Benjamin Graham is considered the father of value investing. His bestseller book titled “Security Analysis,” co-authored in 1934 with David Dodd, is still a course staple at various business schools. As an aside, Warren Buffett was a student of Benjamin Graham.

Many investors focus their attention on books, magazines, newsletters, educational papers and blogs devoted to MPT issues. The internet, television, radio, print and social media outlets cater to an array of MPT needs. The list keeps growing daily by leaps and bounds.

Moreover, today’s investors and professionals have a wide assortments of MPT tools at their disposal. Virtually anyone can track, analyze, select, benchmark, monitor and implement every imaginable portfolio nuance. Conversely, it is very easy to become mired in MPT matters.

However, you may be surprised to discover that portfolio theory is far from modern. It does not have to be complex to be effective. Further, nobody needs to become overwhelmed in MPT.

In fact, portfolio theory sports a long and rich history, spanning centuries. Its fundamental pillars have remained much the same. Even though countless tweaks have been made over time.

Shakespeare’s insights

A while back, I revisited some plays that I had studied during my days of high school English classes. “The Merchant of Venice,” a comedy written over four centuries ago by William Shakespeare, (1564–1616), comes to mind.

I rediscovered one notable excerpt from that play. A concise and insightful situation. It ought to interest practically every investor who thinks long-term.

Let us turn the hands of time back to the days of Shakespeare and focus on the plight of Antonio, the Merchant of Venice. This passage was spoken early in Scene 1 of the play:

SALARINO:
But tell not me; I know, Antonio
Is sad to think upon his merchandise.

ANTONIO:
Believe me, no: I thank my fortune for it,
My ventures are not in one bottom trusted,
Nor to one place; nor is my whole estate
Upon the fortune of this present year:
Therefore my merchandise makes me not sad.

Stop right there. Read it once more. Were he living today, Shakespeare would make a shrewd portfolio manager. I would happily encourage him to become a member of our team. I would empower him to continue dispensing that same eloquent portfolio advice from his day.

Even four centuries ago, Shakespeare professed the sage benefits of diversification. Antonio’s portfolio had various ships, heading to several destinations, with different cargo and spread out over time. A high priority for portfolios continues to be the assessment of what is prudent and sufficient diversification for each case.

Shakespeare’s wisdom is classic, sensible advice for the nest egg. It is also logical and straightforward. Had the Nobel Prize existed in his day, Shakespeare would surely have been nominated for his portfolio insights. Plus, he had skills to blend portfolio strategy into his play.

Time tested practices

Classic investment practices from long ago point to considerable common sense. I highlight a few:

  1. Shakespeare’s portfolio insights have truly survived the tests of time. Something all investors aspire for the nest egg, especially retirement. Keep your eyes firmly on the objectives you seek. Slow and steady gets you to the desired ballpark.
  2. Refrain from reinventing the investment wheel. The more things change, the more they stay the same. The approach to your plan of action is not materially different today as compared to one from centuries past. You have access to far more options and added distractions.
  3. Methodical and logical decisions are best. Spread long-term investing risks by diversifying broadly. Develop and follow a sensible asset mix. Park your emotions at the door. It is a simple and effective base to adopt.
  4. His advice on diversification is core portfolio strategy. It helps achieve and sustain investing success while keeping complexity in check. As in Antonio’s day, it also reduces the chances of the nest egg making you sad.

My take is that present portfolios benefit from applying fundamentals developed in centuries past. Vintage portfolio theory, perhaps, but very modern in its early days. Your mission is to make sense of bumps, curves and potholes that develop along your chosen path.

The broadly diversified approach of yesteryear is still superb, timeless, invaluable advice for your MPT needs. Choose solid, yet simple, foundations that support your financial castle throughout the long journey.

I say accept the portfolio advice. Shakespeare would be proud.

Adrian Mastracci, Discretionary Portfolio Manager at Lycos Asset Management, started in the investment and financial advisory profession in 1972. started in the investment and financial advisory profession in 1972. He graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971, then attended the University of British Columbia, graduating with the MBA in 1972. This blog is republished here with permission from Adrian’s website, where it appeared on June 19, 2018.  

Simple investing isn’t easy

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By Steve Lowrie, CFA

Special to the Financial Independence Hub

In my last post I covered why simplicity often beats complexity, especially when investing.  To quote myself:  “Simplicity is … the art of designing good, simple habits you can effectively implement and readily sustain.”  This keeps you on track toward your personal financial goals, with minimum fuss and maximum cost-management.

So why doesn’t everyone invest simply?  Because it isn’t easy.  We’re often done in by a host of human habits like fear, greed, loss aversion and herd mentality.  These and many other instinct-driven biases trick us into abandoning our good, simple plans whenever the next “all you need to do …” trend comes along.

“All you need to do is buy some dividend-paying stocks and you’ll have the income you need.”

“All you need to do is buy a few ETFs and you’ll be all set.”

“All you need to do is buy a couple hours of financial advice to get you up and running.”

While dividend-paying stocks, ETFs and hourly advice might still have valid roles to play in your plans, these sorts of “how to invest” fads shouldn’t override why you’re investing to begin with.  Plain and simple, your “why” should be guided by your long-term financial goals, like how much wealth you’d like to create or preserve over what period of time.  Your “how” should be grounded in robust academic evidence and time-tested solutions.

Unfortunately, the data tells us investors are often unable to take it easy on hyperactive trading.  For example, a 2017 Vanguard white paper, “Principles for Investing Success,” found that investors would move in and out of mutual funds and ETFs alike in reaction to market mood swings.  They’d also pile into and out of funds according to recent Morningstar ratings.  Instead of patiently embracing an efficient, long-term discipline, they were buying hot, high-priced funds and selling them low, after they’d cooled off.

Vanguard concluded (emphasis ours): “Investors should employ their time and effort up front, on the plan, rather than in evaluating each new idea that hits the headlines.  This simple step can pay off tremendouslyin helping them stay on the path toward their financial goals.”

Simple?  You bet.  Easy?  The evidence suggests otherwise.  That’s why I prefer to work with families upfront and ongoing with respect to their planning and investing.  That’s the only true way I know to ease their way over the long haul.

Steve Lowrie holds the CFA designation and has 25 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog originally appeared on his site on June 5, 2018 and is republished here with permission. 

Retired Money: How to avoid pre-retirement financial stress syndrome

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My latest MoneySense Retired Money column looks at how near-retirees can avoid what author Patrick McKeough calls “pre-retirement financial stress syndrome.”

That’s a syndrome he identifies in his new book, Pat McKeough’s Successful Investor Toolkit. McKeough is a regular contributor here at the Hub and you can find the full MoneySense review of his book by clicking on the highlighted text: Investing tips for retired Canadians.

The book is a distillation of McKeough’s long investment career, honed first at The Investment Reporter, and in recent years his own firm, The Successful Investor, and its stable of newsletters. As a member of his Inner Circle and TSI Network, I have long been a proponent of his common-sense approach to investing. He is remarkably consistent in his insistence that investors of any age rely mostly on a conservative portfolio of quality dividend-paying stocks spread among the five major economic sectors (Manufacturing & Industry, Resources, Finance, Utilities and Consumer). And, he never fails to remind you, steer clear of stocks in the crosshairs of what he calls the “broker/media limelight.”

His newsletters are focused variously on Canadian stocks and U.S. and international stocks, and in recent years he has increased his coverage of ETFs.

A cure for PRFSS: Work longer or refine your spending

So what is“pre-retirement financial stress syndrome,” or PRFSS? PRFSS strikes when mature investors realize they may not have enough savings to generate the stream of retirement income they’d been counting on. While some investors are searching for one last desperate “hail Mary” gamble, McKeough advises the opposite: aiming for safer investments.

And while it may not be what some may want to hear, he suggests those suffering from PRFSS adopt one or both of these two solutions: work longer and/or refine your spending. He challenges them to “turn frugality into a game.”

With his focus on stocks, it’s no surprise that McKeough is not keen on bonds, even for retirees and those on the cusp of it. Continue Reading…

How to pay off your mortgage in 10 years

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By Karren Smith

Special to the Financial Independence Hub

Owning a home without a mortgage is something of a dream for many, and an important step in financial independence. Paying off a mortgage in 10 years can seem like a massive task, but with some simple financial strategies and planning, it’s possible.

While you will need to make some sacrifices, the benefits of owning your home as soon as possible is worth it for many people. By paying off your loan more quickly, you and your family will save thousands of dollars in interest and have more money to put towards the things you love, such as overseas travel, or perhaps a second home for holidays. Owning your house can help your life become freer and more flexible. So how can you escape the shackles of your mortgage and pay off your home in 10 years?

Create a simple plan

Assuming you’re debt free, aside from your mortgage, you can make a simple plan that will help you pay off your home within 10 years. For example, let’s say you have a $300,000 loan at a 5% interest rate. If you have a single income of $95,000, you can pay off your loan in 6-7 years with $2,000 fortnightly payments.

If you’re a couple, with an income of $140,000, you can pay your mortgage off in 5-6 years with $2,600 fortnightly payments.

Of course, these numbers are just a starting point to illustrate what’s possible if you focus on paying your home off. Bigger loans will require more time or bigger repayments. Obviously, the higher your fortnightly payments are, the more quickly you’ll pay off your loan; however, at the same time, it’s important that you have enough money to cover your expenses and live comfortably. Continue Reading…

If an investment sounds too good to be true, check these four things

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We recommend that investors follow an “evidence-based approach” with their investments.  What does the evidence tell us?  Investors should maintain globally diversified portfolios, keep costs low and select a mix of risky and safe investments that is suitable for their risk tolerance and financial goals.

Once a sensible portfolio is in place, holding on through the roller coaster ride of the market’s ups and downs is key to having a positive long-term investment experience.  One of the biggest reasons investors underperform market benchmarks or even the funds in which they invest is their inability to control the emotional urges which can easily lead to bad investment decisions which knock them off course.

Too good to be true

One temptation to which we often see investors succumbing is the “too good to be true” investment product pitch.  For example, many investments are sold as “equity-like returns with bond-like safety.” Upon closer examination a better explanation for such products is often “equity-like or higher risk with very uncertain returns.”

There are four key criteria that you can use to assess every investment opportunity that comes across your path:

  1. Expected Return
  2. Costs and Fees 
  3. Risks
  4. Liquidity (how quickly you can get your money back when you want it)

The only reason we invest is to earn a rate of return.  The rate of return compensates us for letting someone else have use of our capital rather than just leaving it in a high-interest savings account in the bank.  What type of return is reasonable?  Well, you shouldn’t be surprised to hear that the answer is “it depends!” And what it depends on is the other three criteria: the more risk, the higher the costs and fees and the more locked-up your money is, the higher rate of return you should expect. Continue Reading…