private wealth

My Top Three Unconventional Opinions About Investing

private wealth management

Like a nutritionist advising you to drink more water and eat more vegetables, almost everything I say is right out of the investment advisory playbook. But, like any good expert, I’ve developed a few sound opinions that surprise my clients and help them benefit from personalized strategies that buck convention. Read on to see if my top three opinions surprise you. 

1. Dollar-Cost Averaging Doesn’t Work

You may have just felt the Earth tremble after such a ludicrous statement, but it’s true—with some caveats and clarifications. 

Dollar-cost averaging, or DCA, is the practice of investing equal amounts of money at regular intervals into a particular security, regardless of price. A 401(k) typically uses a DCA strategy. There have been many studies that invalidate DCA, but those analyses are drowned out by the mainstream reinforcement of this approach as a commonsense—and comfortable—strategy.

After the initial shock wears off, here are the top three questions I get next:

Why doesn’t the math work?


The fact that markets tend to go up over time is the simple explanation for why DCA, which hedges for market volatility, is inferior to both a lump-sum investment strategy and a buy-and-hold investment strategy.

Why do investment advisors still lean on a dollar-cost averaging strategy?

 

Simply put, there is an emotional side to investing. DCA feels safer than investing everything at once.

What would be a better approach?


Create a pool of liquid assets that are sufficient for your short-term cash-flow needs (typically 12–24 months). Invest everything else relatively quickly across your asset allocation. For clients who have a lump-sum to invest, a normal transition is one to three months, depending on the complexity of the portfolio. 

 

2. Put All Your Eggs in One Basket 

I didn’t quite feel the Earth tremble with that statement, but I did hear my grandfather’s voice telling me the exact opposite. In this day and age, when it comes to choosing your investment advisor, it’s sage advice. 

The truth is, controlling costs is one guaranteed way to generate higher real returns. And hiring only one firm allows you to take advantage of the traditional tiered fee schedule, which results in lower investment advisory fees and enhanced returns. 

Is this self-serving advice? Only if you select Private Wealth as your wealth management firm. As you consider the right wealth management firm for your needs, keep these three things in mind:

  • Look for a fiduciary that is mandated to act in your best interest.
  • Look for an advisory team that leads with a plan. The investment conversation should not be first.
  • Find a firm with a philosophy that focuses on real returns, meaning your returns after taxes, fees and inflation.

 

3. Buy That Stock Tip

I must admit, typing that made my palms sweat a little. My point in this statement is to say that investing does not need to be complicated, boring, or proprietary. We should change that perception. 

If you enjoy uncovering hidden gems in the market or talking stocks with your family and friends, then you should do that in a trading account you manage. Many of my clients do this with a few guidelines:

  • Your trading account should not be your entire portfolio, or even most of your portfolio.
  • Your trading account is a good place to hold investments that are special to you or stocks concentrated in an industry you know very well.
  • If you enjoy speculating on interests like commodities or Bitcoin, a trading account is a good fit. (I love talking about these trades with my clients.) 

Guidelines and best practices are rooted in good reason, of course, and they often deliver security and peace of mind. At PW, we focus on our clients as individuals, optimizing their investment strategies based on their unique goals, interests and circumstances. If you’re curious about fresh investing perspectives that can serve you better, my final opinion: Don’t put it off. Start a conversation with our PW team or your wealth management firm today and get started. 

Newsletter

Expert insights delivered straight to your inbox.

We write to our friends and family every few weeks or so with big news, big ideas, and big updates. Sign up now and get the inside track.

wealth planning
hanging with grandson