10 Investment Strategies to Last a Lifetime

Needs change over time and shortcut strategies that may work one year can prove to be obsolete, and even costly, the next. Here are some of the sound strategies to use throughout your lifetime:

Invest in what you can understand. Ignorance is never bliss when betting on a particular sector or company over time. Otherwise, you may as well play the slots in Las Vegas. If you don’t understand why or what you are investing in how can you determine that you are going to be successful?

Start investing as early as possible. The longer money remains invested, the more potential it has to compound and grow. Investors who start early, practice patience and stick to a long-term investing strategy often see the best returns and financial success. Case in point: Someone who contributes $1,000 into an individual retirement account from ages 20 to 30, and then stops, has a big edge over someone who starts at age 30 and invests $1,000 a year for 35 years. Assuming a 7 percent average annual return, the first person will have $168,515 at age 65, and the second will have $147,914.

Put a 401(k) match into your mix. It’s hard to believe people turn down free money that grows with time. But three in ten workers with access to an employer match in their 401(k) fail to participate. If your employer has a matching contribution inside of your company’s plan, make sure you always contribute at least enough to receive it. You are essentially leaving money on the table if you don’t take advantage of the matching contribution.

Set up and stick with sound cash-flow management. This is a very essential part of investment planning or portfolio management over the long term. The key is simple yet crucial. Automatically invest money during your working years – each month at the very least. Simply adhering to the cash-flow plan, while making reassessments as life progresses and needs change, will put an investor a long way toward achieving their goals.

Separate emotions from objectives. If you treat an investment possibility with the same partisanship as a sports team fan (or hater), you’re setting yourself up for trouble. Separating your emotional involvement with investing will lead to better overall judgment and performance. We all know markets will go up and down, we just don’t know when or for how long. It is key to stick to your strategy and not allow your emotions to allow you to do things that are detrimental to your overall success.

Turn discretionary spending into investing. Those who delay investing for years often confuse needs with wants. Cellphone bills, cable TV packages and automatic services of all kinds gradually become necessities, and because of that we often put ourselves in a situation where it is impossible to save. Investing takes discretionary income, and discretionary income takes discipline. Question those things that have become the norm but may not be necessities.

Put investments and cash reserves in separate buckets. The biggest risk in investing involves needing your money at the wrong time. By keeping any funds you’ll need in the next three to five years in liquid accounts you won’t have to sell your investments at a loss. You’ll have funds available when you need them, even if the market has gone down.

Make equities a cornerstone of your strategy. Stocks, ownership in companies, is one of the greatest wealth-creation tools known to mankind. Investors need equities in their attempt to grow their portfolio and outpace inflation. Even with some moribund stretches lasting through the 1960s and 70s, the Standard & Poor’s 500 index has produced an average 20-year return of 7.25 percent if you look at all 20-year periods dating back to 1926.

Diversify for a smoother ride. There are plenty of horror stories about investors too tied to a particular stock or other investment. Diversifying across asset classes as well as within asset classes is a smart way to go. Equities are different when it comes to characteristics such as market capitalization, U.S. versus foreign or growth versus value. Though it doesn’t ensure a profit or protect against a loss in a declining market, being diversified provides the potential for a smoother ride.

Adjust. Don’t waver. In a large number of instances, portfolios need tweaking with time rather than a complete overhaul, which nervous investors too often resort to during down market cycles. Investing is a long-term activity, not a sporting event with minute-by-minute adjustments. Treat it as such, and make small, infrequent adjustments to your investing strategy rather than trying to time the market.

— Nikki Earley

Shell Prepares for a Lower Demand / Lower Price Oil Future

Royal Dutch Shell PLC recently laid out a pessimistic vision for the future of oil, even as the company reported success in generating cash during a prolonged downturn. Shell has cut costs and said it is preparing for a world in which crude prices never return to pre-crash levels and petroleum demand eventually declines. Shell Chief Executive Ben van Beurden said the company has a mind-set that oil prices would remain “lower forever”—a version of the “lower for longer” mantra the industry adopted for a price slump that proved unexpectedly lasting. “We have to have projects that are resilient in a world where oil has peaked,” Mr. van Beurden told reporters on a conference call discussing the company’s second-quarter financial results. “When it will happen we don’t know, but that it will happen we are certain.”

The views of the British-Dutch oil company reflect the transition under way in a global energy industry grappling with the twin forces of an oil-supply glut and a looming consumer shift away from petroleum. These trends are even more pronounced for oil companies in Europe, where local and national governments are trying to phase out vehicles with combustion engines, encourage electric automobiles and reduce overall carbon emissions. Experts differ on the timing of peak oil demand. In its most conservative scenario, Shell sees oil peaking within the coming decade. The International Energy Agency says the timing will be more like 2040. The advent of declining demand—after decades of untiring growth—would likely cause a slide in the value of oil and the companies that produce it.

On the other hand, U.S. energy giants such as Exxon Mobil Corp. and Chevron Corp. have said peak oil demand is still far off. And even when oil consumption eventually stops growing, Shell is not expecting it to drop off a cliff. “It doesn’t mean it’s game over straight away,” Mr. van Beurden said. “There will be a continued need for investment in oil projects.” Mr. van Beurden’s comments are broadly in line with Shell’s overall strategy of moving toward producing fuel for electricity, such as natural gas and even renewables, and focusing on keeping costs low. The company now produces more gas than oil, is building a massive wind farm off the Dutch coast and has plans to spend up to $1 billion a year on building its presence in new energy sources such as renewables by the end of the decade.

Despite Shell’s conservative view on oil, the company presented what analysts said was a strong set of financial results for the second quarter. Shell’s equivalent of net profit rose to $1.9 billion from $239 million a year earlier and its cash flow from operations soared to $11.3 billion. The company said it generated $38 billion of cash from its business over 12 months, enough to cover dividend payments and bring down debt.

Shell’s earnings were reported on the same day as French oil giant Total SA and Norway’s Statoil ASA, all of them striking a confident if cautious note. They trumpeted falling debt levels and strong cash flow—a metric that has become increasingly important to investors who have been worried about oil companies’ ability to cover their spending and dividends without taking on debt. Cash flow has become an important way to gauge the health of big oil companies during the price downturn because it demonstrates their ability to make dividend payments to investors without taking on new debt.

Hefty, regular dividends are a significant reason that big investors put money in oil companies, which have historically struggled to offer hope of significant share-price growth because of their size. Investors are particularly wary in an era of low oil prices. At the depths of the oil-price crash, big oil companies took on tens of billions of dollars in debt to help cover dividend payments. Several offer payouts as company shares, known as scrip—a practice that has kept investors happy in the short-term but was widely seen as unsustainable.

In the first quarter of last year when oil hit its nadir of $27 a barrel, Shell’s cash flow fell to just $700 million. Oil’s fragile recovery since then to around $50 a barrel has helped the sector, but Shell and its peers have also engaged in aggressive efforts to bring down costs so they can survive at lower prices. Shell said that removing its scrip dividend remains a priority that it is working toward. “We are getting fit for the 40s,” Mr. van Beurden said, referring to a world in which oil prices are below $50 a barrel.

Citations

1. http://on.wsj.com/2tKCTNH – Wall Street Journal
2. http://on.mktw.net/2w7kefz – MarketWatch.com

The Good News Is . . .

• Second quarter gross domestic product (GDP) was healthy, growing at a 2.6% annualized rate with the consumer spending component also healthy at a 2.8% rate. Business investment, at 5.2%, was very strong and offset lower residential investment. Overall inflation remains weak at only a 1.0% rate. Core inflation was just 1.1%, down from 2.4% in the first quarter. Consumer spending for durable goods was very robust at 6.3% despite the quarter’s weakness in vehicle sales. Spending on nondurable goods also rose at 3.8% which occurred despite weakness in gasoline prices.

• Stanley Black & Decker, Inc., a leading supplier of tools and related equipment, reported earnings of $2.01 per share, an increase of 9.2% over year-earlier earnings of $1.84 per share. The firm’s earnings topped the consensus estimate of analysts by $0.05. The company reported revenues of $3.2 billion, an increase of 10.1%. Management attributed the results to strong organic growth in its tools and fastenings business segments, improved operating margins, and contributions from its recent acquisitions.

• Michael Kors Holdings announced the purchase of the shoe company Jimmy Choo for $1.2 billion, the latest push by an American high-end fashion house to find new sources of growth and what its chief executive characterized as the first step in building a bigger international luxury group. Many upscale brands like Michael Kors have faced plummeting sales and tepid profits. Mall traffic in North America has declined sharply, while shoppers who have traditionally been loyal to the so-called middle market have gravitated toward brands at extremes of the style and price spectrum. The trends have played well for e-commerce giants like Amazon, fast-fashion brands like H&M and Zara, and luxury houses like Gucci. But it has left companies like Michael Kors—once the runaway leader of the “accessible luxury market”—exposed. Under the terms of the transaction, Jimmy Choo investors would receive $3 for each share they own.

Citations

1. https://bloom.bg/2eVhfSb – Bloomberg
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2vR5K47 – Stanley Black & Decker, Inc.
4. http://nyti.ms/2eV3nt4 – NY Times Dealbook

Planning Tips

Tips for Investing Like Ultra High Net Worth Individuals (UHNWI)

The ultra-wealthy, known as ultra-high net worth individuals (UHNWIs), is made up of people who have a net worth of at least $30 million. The net worth of these individuals consists of shares in private and public companies, real estate investments, and personal investments—such as art. When people with a lower net worth look at these UHNWIs, many of them believe that the key to becoming ultra-wealthy lies within some sort of secret investing strategy. However, this is not normally the case. Instead, UHNWIs understand the basics of having their money work for them as well as understand how to take calculated risks. Below are some basic strategies used by UHNWIs that you can use to increase your net worth. Be sure to consult with your financial advisor to determine which investment strategies are appropriate for your situation.

Deciding to Invest Only in the US and the EU – While developed countries such as the United States and those within the European Union are thought to offer the most investment security, this is not necessarily the case. With the recent high risk in the EU, UHNWIs are currently looking beyond the U.S. and the EU for investments. While many investors would rather stick to investing in developed countries in the Western world, UHNWIs have been setting their sights on frontier and emerging markets. Some of the top countries that the ultra-wealthy are investing in include Indonesia, Chile and Singapore. Of course, individual investors should do their own research on emerging markets and decide whether they fit into their investment portfolios and their overall investment strategies.

Choosing to Invest Only in Intangible Assets – When people think of investing and investing strategies, stocks and bonds normally come to mind. Whether this is due to higher liquidity or a smaller price for entry, it does not mean that these types of investments are always the best. Instead, UHNWIs understand the value of physical assets, and they allocate their money accordingly. Ultra-wealthy individuals invest in such assets as private and commercial real estate, land, gold and even artwork. Real estate continues to be a popular asset class in their portfolios in order to balance out the volatility of stocks. While it is important to invest in these physical assets, they often scare away smaller investors because of the lack of liquidity and the higher investment price point. However, ownership in such assets, especially ones that are uncorrelated with the market, can be beneficial to any investment portfolio. These assets are not susceptible to market swings, and they can pay off over the long-term.

Allocating 100% of Investments to the Public Markets – UHNWIs understand that real wealth is often generated in the private markets rather than the public or common markets. The ultra-wealthy may gain a lot of their initial wealth from private businesses, often through direct business ownership or as an angel investor in private equity.

Failing to Rebalance a Personal Portfolio – Everyone should understand the practice of rebalancing their portfolios. Through consistent rebalancing, investors can ensure that their portfolios remain adequately diversified and proportionally allocated. However, even if some investors have specific allocation goals, they often do not keep up with rebalancing, allowing their portfolios to skew too far one way or the other. For the ultra-wealthy, rebalancing is a necessity. They can undertake this rebalancing monthly, weekly, or even daily, but all UHNWIs rebalance their portfolios on a regular basis. For the people who do not have the time to rebalance—or the money to pay someone to do it—it is possible to set rebalancing parameters with investment firms based on asset prices.

Omitting a Savings Strategy from a Financial Plan – Investing is the number-one way to become ultra-wealthy, but many people forget about the importance of a savings strategy. UHNWIs, on the other hand, understand that a financial plan is a dual strategy: invest wisely and save wisely. This way, the ultra-wealthy can focus on increasing their cash inflows as well as reducing their cash outflows, increasing their overall wealth. While it might not be common to think of the ultra-wealthy as savers, UHNWIs know that living below their means from day one will allow them to achieve their desired level of wealth in a shorter amount of time.

Citations

1. http://bit.ly/2uG5JBR – US News & World Report
2. http://read.bi/2tKRatu – Business Insider
3. http://bit.ly/1WPJNdb – Investopedia
4. http://cnnmon.ie/2uK8sZl – CNN Money
5. http://bit.ly/2u5uqnF – Motley Fool