Five Things Every Portfolio Should Have

Do You Have These Important Aspects of Investing Covered?

I may sound like a broken record here, but there are few things more important to your investment success than continued investor education. We love our countdown lists here at Davidson Capital Management, and today I’m bringing you one that I hope will increase your understanding of what makes a successful investment portfolio. Read on for five things you need to consider when building your portfolio, and why you need a strong strategy for each one.

1.     Reliable, Consistent Income

Years ago, retirees could simply buy bonds and enjoy a comfortable retirement simply based on their bond portfolio. Unfortunately, that doesn’t work today. Decades of falling interest rates have led to bonds producing income yields that are simply too low to finance your retirement years. So, if you’re planning your retirement income strategy today, you need to include a non-bond strategy to help get you there.

There are much higher dividend-paying, blue-chip stocks that can pay consistent income, with the bonus of potential price appreciation, too. Plus, qualified dividends are taxed at a lower rate than bond interest. But with that said, I caution all investors to not simply focus on a company’s dividend yield. A company’s underlying fundamentals must be analyzed to determine the long-term quality and capital appreciation opportunity the company possesses. A company may pay a strong dividend but if they are weak fundamentally its dividends will be eroded by the capital depreciation of the stock’s price.


SEE ALSO: Five Qualities of a Good Investor


2.     Capital Preservation Strategy

Every investor wants to avoid a big loss, but what that means is a very personal decision. It’s a good idea to think through the size and make-up of your portfolio and quantify what a “big loss” means to you. Basically, ask yourself what level your portfolio will have to drop in order to really get you shaking in your boots. This stress point is important to know because it’s the point where you could make some irrational decisions based on emotions. If you know in advance what your stress point is, you can develop a strategy to rebalance it as preventative medicine. At Davidson Capital Management we are a tactically balanced active asset manager so as the market environment changes our portfolios are adjusted to mitigate downside risk. But no matter what market condition your portfolio will face we never recommend an all-in or all-out strategy. It all comes down to a proper asset allocation balance through all market cycles.

3.     Liquidity

Here’s the thing – it’s hard to fully appreciate just how important it is to be able to easily access your money until you find yourself in an uncomfortable position and you really need it. In my work, I have heard too many stories from retirees who thought they had easy access to their assets, only to be tricked by the fine print – or by some scheme they invested in. To have more control and peace of mind, make sure your investments can be turned into cash within a few days at the most. The lack of liquidity is one of many reasons why we dislike annuities of all shapes and forms.

4.     Competitive Cost Ratios

Cost is absolutely an important consideration when you’re selecting an investment path, and there’s a lot of talk about it in the financial services industry. The fastest way to add value to your retirement nest egg’s bottom line is to maintain low investment fees. Whether those fees are charged by an investment advisor, exchanged traded funds, mutual funds, or a combination of them if you don’t have a strong understanding of how much your portfolio is paying in fees annually you need to start asking yourself the question. If you work with an investment advisor and they are not able to provide you immediate transparency of your total annual fees including the underlying expenses of the investment options in your portfolio I would recommend finding a new investment advisor.


SEE ALSO: The Importance of Rebalancing: Why You Shouldn’t ‘Set and Forget’ Your Portfolio


5.     Potential for Long-Term Growth

To truly be an investor – rather than a trader – you need to be playing the long game with your portfolio. Just as you need to know your stress point for a big loss, you also need to determine what your goals are in terms of the growth of your principal – and over what timeframe. There are many strategies to pursue growth over time, so knowing your goals and time horizon will help guide your investment decisions. If you are a few years out from retirement or currently retired, you need to know the dollar amount of annual withdrawals to sustain you.

Does Your Portfolio Need Some Work?

If you have the above aspects covered in your portfolio and you remain disciplined in your approach, you stand a good chance of hitting your investment goals over time. However, if you’re like many retirees or near-retirees and you haven’t solidified an investment strategy that covers all five of these must-haves, let’s talk. At Davidson Capital Management, mutual respect is the foundation of our advisory relationship and the springboard for adding value, not just to our client’s portfolios, but to their lives.

We appreciate each client’s story and aspirations, their challenges and concerns, and build a mutual commitment to achieving their goals. We instill confidence by providing our clients direct access to their investment management team and creating transparency via sophisticated portfolio reporting. If you’d like to talk with a member of our team, contact us today.

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