UK Vs. Florida as an Investing Lesson

As a Kentucky fan, think back to the end of last year’s Florida game and allow yourself to remember that feeling for a moment. That feeling of “what if” is what we’re trying to avoid in our investing. As a recap, we beat Florida like a rented mule through three quarters. Then, it happened. Florida scored not once, but twice, in the fourth quarter to erase a big lead. Two plays turned a 27-14 Kentucky lead into a 28-27 Kentucky loss. Not only did we lose the game but perhaps our best opportunity to beat the Gators in the last 31 years.

What does that have to do with investing? Always keep your focus on the wide receiver, I mean, your goals.

Invest for YOUR Situation

When the Great Recession hit and the stock market tumbled over 50% in 2008-09, there were two types of investors. Those who were invested according to their financial plan and, thus, were prepared for market ups or downs. And those who weren’t.

If your portfolio was split 50/50 between stocks and bonds, your portfolio would have lost about 29% in value during the crash but gained it all back in about 1 year.

If your portfolio was 100% in stocks, it would have taken you about 3 years to claw your way back to even.

I’m Focused on Our Goals

I recently decided, in consultation with my financial advisor Ramsey Bova (yes, everyone needs help with these decisions, even us advisors) to de-risk our portfolio. Not because I’m predicting how the market will behave but because Lisa and I don’t need to take as much risk as we did when we were younger and had less. So, we decided to sell parts of some of the mutual funds that have gained a lot and take those profits and invest in safer, more stable investments. Why? Because the approximately 4.5% yield that we will receive from these new investments will be more than enough to meet our goals. Why take additional risk in search of 3-4% more return if it’s not necessary?

Take Only Enough Risk To Hit Your Goals

I firmly believe no one should take more risk than is necessary to achieve their goals.

For someone in their 30’s or 40’s that amount of risk will probably be larger than for someone in their 50’s or 60’s. Here’s why:

1. If you are 40 and shooting for your financial freedom by age 60 or 65, you can and should take on more risk because you require larger returns. So, your portfolio should contain assets intended to grow combined with a few investments designed to be steadier and hopefully not decline when the market does. In football terms, be aggressive – but not reckless - on offense while employing a strong defense to protect those points you put on the board.
2. Now, if you are in your mid-50’s or 60’s, and have accumulated just about enough wealth/investment assets for your financial freedom, why on earth would you take unnecessary risk? In football terms, it’s the 4th quarter and you have a lead, so protect it. Trust me, the market will decline at some point. No one knows when, but it will, and you should protect what you’ve worked so hard to accumulate. Don’t get burned by the wideout!

I wish I could promise you a victory against Florida on Saturday. But I can’t predict that any more than I can predict the movement of the stock market. What I can promise, however, is by investing according to your financial plan and measuring the risk you need to take based on your specific goals, your likelihood of success will balloon like Jared Lorenzen at a pizza party.

Steve Byars

'Cats by 90!