Investing is a Process; Lasting Legacies Should Be the Goal

Building a lasting legacy is a process, not a checkbox.

Investing is a large component of the lifelong legacy process, as reaching our goals for retirement savings and charitable giving all depend on financial success. That said, a legacy is not built in a day. It can be tempting to look at your accounts every day; excitement builds when you see gains, and you can feel disheartened to see losses. It can be even more tempting (but far too often perilous) to chase returns or even sell when you see movement in the markets.

Remembering that investment is a process that builds toward creating a legacy is important to avoid the dangers of investing with the wrong perspective.

Long-Term Focus

Behavioral finance focuses, in part, on the irrational decisions investors make, such as reacting to short-term market movements instead of investing for the long term. Professional management from Ambassador Advisors can help you invest for your legacy, as well as provide education and guidance to keep you on the right path in both good and bad market environments.

Capital markets are cyclical in nature and volatile day to day, but, historically, markets rise in the long term. This is important to keep in mind, as someone working to build a lasting legacy. Your legacy is not about today; it is about the future.

Age-Old, Good Advice

Sometimes it makes sense to sell positions that drop in value and buy positions that rise in value. If these decisions are not based on sound analysis, however, this behavioral bias of chasing “hot stocks” or “selling losers” can have consequences. These biases lead investors to reverse the mantra of buy low, sell high and instead buy high, sell low.  This is not in line with achieving long-term financial goals!  Having a professional manager educated on behavioral biases and trained to help you avoid them can protect you from falling into this common pitfall.

Part of the long-term investment process is having a strong basis for investment decisions. This starts with performing a rigorous analysis behind the decision to buy or sell a security.  This helps avoid the temptation to liquidate in a down market, thinking you can avoid potentially more losses. This behavior bias to avoid losses leads investors to make their losses permanent and lose out when the market lifts off again. A professional manager from the team at Ambassador Advisors can help you keep focused on your long-term goals and align your investments to your specific investment horizon.

Risk Tolerances

Another behavioral pitfall for investors is choosing inappropriate risk tolerances given an individual’s unique financial situation and future goals. Investing too conservatively or with too much risk can create problems for unique financial situations. When determining how much risk an investor can and should bear, both their financial situation and legacy goals need to be considered.  Some investors seek too much risk for their situation: they seek returns at the risk of meeting their goals. Other investors invest too conservatively: they are fearful of losses, causing the loss of potential returns.

These risk-avoidant and risk-seeking behavioral biases can be address by Ambassador’s professional managers using education and goals-based risk allocations to help investors have appropriate investment strategies. Avoiding these biases can lead investors to turn around behaviors that would otherwise undermine their long-term financial goals.

A Trustworthy Process

Following the investment process, capital market knowledge, avoidance of behavioral biases, and investing to personal goals are ways our team of professional managers can assist you in building a lasting legacy.

The process of investment management requires a strong background in fundamental, technical, and quantitative analysis that ranges across the economic outlook, asset allocation, sector selection, and company exposures. Coupled with tax implications from trading, this is quite a breadth and depth of technical knowledge that is needed to invest knowledgably and efficiently. Indeed, investing is much more than picking the correct companies. Wise investing includes creating a portfolio with the appropriate level of risk, ensuring diversification, minimizing taxes, and allocating assets. Factoring in each area of expertise is important to consider and implement.

One example of a pitfall individual investors can face is a lack of diversification, which can come from behavioral biases or insufficient time to research an adequate breadth of securities. The consequences of not being diversified can be devastating. You may recall how many Enron employees and investors learned this on December 2, 2001, when Enron declared bankruptcy. Many saw their retirement plans go to zero, as they had invested entirely in now-worthless Enron stock.

This also exemplifies another aspect of diversification outside of a single portfolio. A good investment manager considers your entire financial picture including your job, your spouse’s job, as well as your savings and investments.

Tax Efficiency

Taxes must be considered in any investment strategy, and professional management brings the wisdom that allows a positive, large impact on investment income and financial strategies outside of market performance. A key consideration in investment management is avoiding violating the “wash sale” rule when selling a position at a loss and later buying back into the position. If this somewhat obscure rule is not followed, the tax benefit from the realized losses is forfeited. Professional management from Ambassador Advisors’ team can help you avoid tax and diversification pitfalls, while providing a process-driven investment strategy.

Building a lasting legacy is a process that requires focusing on the future and avoiding the temptation to focus too much on today. Professional managers can help address the risks from behavioral biases that cause investors to stumble, while guiding you in the investment process. A process-driven approach, vigilance against behavior biases, and investment knowledge are the keys that Ambassador’s team of professional managers bring to help you unlock a lasting legacy.

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.
This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.