Retirement - Do You Invest Or Do You Save?
The Dynamic Wealth Report
February 13, 2009
Are You An Investor Or Saver?
I know I’ve
been talking about my ski trip to Aspen for some time now. I have just a
few more stories I think you can profit from… so bear with me.
As I mentioned before, the annual ski trip is an assembly of incredibly smart
guys. All of us are in the finance industry. I go every year with
one goal in mind. To listen for great investment ideas. It’s amazing
some of the ideas that get thrown about.
One evening I had the privilege of dining next to an asset manager from Canada.
This energetic guy shared his views on the markets and how to profit. He’s
a strong believer in asset allocation, but he has a very unique way of looking
at equities and debt instruments.
Some of his comments really got me thinking.
Before we delve too deeply into his ideas, let me tell you a little bit more. My
friend has been an asset manager for some time now… and he’s building his
practice. See, he’s very selective over whose money he’ll take. He
won’t work with just anybody.
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If I had to guess I’d say he has about $150 million under management.
Keep in mind, this is a guess on my part. Asking how much the guy manages
is like asking how much money he makes – it’s rude. Really, the amount he
has under management doesn’t matter… what’s important to know is that he’s
experienced.
As we talked over dinner, we argued about market direction, international
investing, and even asset allocation strategies. We even shared a few of
our favorite stock picks. But the one comment that really stuck with me
was his comment about clients.
In his observation, high net worth clients tend to fall into one of two
categories. They’re either “Savers” or “Investors”.
I had to stop him there. What did he mean?
He gave me a perfect example. One client is trusting him with just over $5
million. This client is a stock trader for a major investment firm.
Now you’d think a guy like this would be willing to take on some risk.
You’d expect him to be a big “Investor”. He, better than anyone else,
would understand the potential gains to be made in the market.
But you’d be wrong.
This client was a classic “Saver”. He didn’t want to take on risk.
His entire portfolio is in bonds. He was upset at the thought of losing
just 2% of his capital because of the market turmoil. (Keep in mind some
equity investors are down 30%, 40%, and even 50% or more!)
Despite the perception he’d be a risk taker, his focus was on capital
preservation. That’s why he was a “Saver” and investing in bonds.
In contrast, other clients understood the potential profits a market could
return. They were more willing to take on risk… and they had a big portion
of their portfolio in equities. Here’s the important point. You
can’t make a "Saver" an "Investor". And you can’t make an "Investor" a
"Saver".
Because of this, it’s important to understand what kind of person you are.
Most of us are not all one or the other. Most of us fall somewhere in the
middle. Knowing where we stand help determine the types of investments
best for us.
It turns out the “Saver” vs. “Investor” comment was an observation on risk
profiles.
The more risk averse a person is, the more they’re focused on saving capital… at
the sacrifice of growing capital. So this brings me to another observation
my friend had… when a bond isn’t a bond.
It’s a bit complicated (and I’m running out of room here) but this was his
comment in a nut shell. High yield bond investments are throwing off huge
amounts of yield. Some are upwards of 15%, 18%, 20% or more. This makes
them really attractive investments.
Here’s the twist. He classifies these high risk bonds as equities not as
bonds. The risk profile of a high yield bond is much like an equity.
Big gains are possible, but so are losses. By classifying them as
equities, he’s segmenting risk profiles. It allows him to give these
investments a unique look.
I found this thinking fresh and original. That’s why I wanted to share it
with you. Take a few moments to look at your portfolio. Make sure
it’s risk profile matches yours. No sense losing sleep over something
easily changed.
• ASML
(ASML) was upgraded to a “Buy” at Deutsche
Securities. The entire semiconductor industry is falling off a cliff,
yet this company gets an upgrade… something doesn’t make sense.
• Molson Coors
(TAP) was downgraded by Argus to a
‘Hold”. The normally recession resistant alcohol industry is struggling
this time around.
•
Collins Stewart started research coverage on Lockheed Martin
(LMT).
Lockheed has 15 other analysts… why bother covering the
company?
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