Salad Surprise

A friend of mine, let’s call him Tom, is constantly put on a diet by his wife.  One of the ways Tom appeases her is by ordering taco salads in a restaurant instead of a traditional entree.  She assumes he’s being healthy, but little does she know, some of the worst taco salads can pack in as many as 1,700 calories and over 100 grams of fat! Someone needs to do her homework.

As important as it is to the success of dieting to understand what you are eating, it is equally important to understand what you are buying when making an investment.  The due diligence process is initiated with the establishment of current tactical allocation, which you can read more about here.  With the asset classes identified, it is time to start doing your homework by researching to identify the appropriate securities to fill each asset bucket.

  • Define and Research:  Review asset category and characteristics of the category.  Consider opportunities and risks.
  • Know what you own:  Look at a prospectus or Statement filed with the SEC to make sure you are buying what you think you are buying (is it a healthy salad or, in Tom’s case, the equivalent of 37 strips of bacon?). 
  • Quantitative Review: Review of performance and risk characteristics of investment options within the category.  Criteria may include:
    • Look at performance standouts over different time periods – 1, 3, 5, 10 years.
    • Review performance in difficult time periods (bear markets or periods of performance difficulty for the asset category). 
    • Check out standard deviation, or risk, relative to similar investments.
  • Establish reasons for conviction:  This can prevent you from falling into a common investor behavior of selling the investment when it is out of favor (which is usually the best time to purchase it).

Do your investment “waistline” a favor and do your homework. Don’t be fooled by taco salads, make sure you are really getting what you want when it comes to investing by having a defined buying process or talking to your financial planner today about establishing one that is appropriate for you!

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  Past performance may not be indicative of future results.