A well-rested portfolio
05 July, 2016
Well, as expected Brexit gave us enough anxiety and stress to last until the next big event — the US election, the next Fed meeting minutes, who knows what it will be. Also as expected, markets have largely taken Brexit in their stride and continued on the path they were already on.
I read a column recently that I felt was worthy of sharing, particularly as we sit in the middle of the year, the middle of winter, and the middle of a market that doesn't have enough energy to move decisively forward (or backward either, thank goodness).
Phil Huber of Huber Financial Advisors challenged investors with the question: Is your portfolio getting enough sleep?
He quoted billionaire investor Seth Klarman who said "ultimately, nothing should be more important to investors than the ability to sleep soundly at night". In a world that is 'on' 24/7 sleep loss is a major problem. Without enough sleep, it's only a matter of time before mental, emotional and physical fatigue sets in. Our portfolios are no different — they need sleep too!
There's seemingly no end to the concerns we, and our portfolios, could lose sleep over if we allowed them to. Last month Brexit was at the top of everyone's list, but the other regulars — currency weakness, company earnings, China, Trump, dairy, and any number of experts proclaiming imminent doom — were ever present.
In the last month, our International portfolios suffered most from Brexit, but those investors who had exposure to our Fixed Interest, Property, and Australasian portfolios would have felt less anxious than those holding just one fund.
Huber gave what I consider good advice in terms of how we can 'get some more ZZZs' for our portfolios. It's not too different to the advice any insomniac would be given.
- Reduce stress. How? Through diversification. This involves spreading your investment portfolio across different companies, industries, countries, asset classes and investment strategies. Diversification can help to eliminate unwanted or unintentional risk by ensuring that while everything in the portfolio matters, no one thing matters too much.
- Eliminate distractions. Just as you shouldn't try to sleep with your computer screen glowing, a portfolio that is inundated with fear-inducing headlines is bound to keep itself awake with anxiety. Some headlines will be real and warrant our attention, but many more will prove to be no more than noise. Rather than wasting energy trying to decide which news we should take seriously, we're far better to focus only on the things that matter: long-term returns. We warned last month about the media circus that would revolve around Brexit, and sure enough, it proved a distraction rather than an issue to lose sleep over.
- Stick to a sleep schedule. Consistency is critical. We're told that it's not the total hours of sleep that matter, but the consistency of it, like going to bed at a similar time each night. It's easy to stay up late or sleep in a few mornings, but this can throw off our rhythm and lead to poor rest. Similarly having a plan around our portfolios can help manage our emotions and keep us calm and well-rested. Making regular investments can help us stay disciplined as it avoids us having to make unscheduled decisions, particularly in times of market stress and volatility.
- Move the bedroom clock. Checking the time every five minutes is a sure-fire way of not sleeping. Checking your portfolio returns every day will certainly lead to more anxiety than necessary, and may lead to impulse reactions which you may later regret.
A sleep deprived portfolio is going to have a hard job lasting the distance and is not going to be able to do the heavy lifting when required.
This middle of the year period is a good time to give our portfolios a well-earned rest. On the road ahead, we've a bit of a breather between major economic, political and company announcements so it's a good time to count sheep. Don't worry though, we'll be staying awake.