Paul Bankes, CFP®
After spending 22 years in education, Dr. Bankes personally achieved the financial independence he desired and changed careers to pursue his passion of helping others pursue the financial independence and freedom that is possible. His mission is the financial prosperity of clients, while never forgetting it’s about life, not just money.
While the strategies for each of his clients may be different, the goal is always the same…building a strong financial foundation to help guide towards financial independence and prosperity. Using his educational skills, strong interpersonal skills, and unwavering ethics, Paul builds meaningful relationships and empowers his clients to be successful. He thinks differently and pursues different results.
Paul holds the investment related Series 7 (General Securities Representative) with LPL Financial, and Series 66 (NASAA) with Wealth Management Group, LLC.
Paul received a Bachelor’s degree in education from the University of Wyoming and a Master’s and Doctorate degree in educational leadership from Texas Tech University.
Paul supports his local community through volunteering and philanthropic activities with an emphasis on education.
Paul and his wife, Carla, live in Cheyenne, Wyoming. His two daughters are currently attending college.
Why Your Lazy, Diversified, Buy-and-Hold Portfolio May Cost You a Lot of Wealth
As an active money manager, I believe that risk management and responding to market conditions is crucial to long-term financial independence. However, these important ideas are not part of the lazy, diversified portfolios many investors possess. Many investors have been told over and over that the only prudent way to invest is to put together a well-diversified portfolio and then hold it. In my opinion, these lazy portfolios buy and then hold the same five or more assets with an occasional rebalancing. These passive portfolios hold these asset classes even when they are performing poorly, and other areas show more potential. These portfolios are held through all the ups and painful downs of the market and often result in lower long-term returns compared to actively managed portfolios. Yes, it is true that if you buy and hold a portfolio long enough you are almost guaranteed not to lose money. Over long periods of time markets do go up. However, this time period to ensure no loss could be over twenty years and not grow your wealth as needed to retire comfortably.
The strict buy-and-hold, diversified portfolio potentially exposes investors to two significant dangers:
- Their investment return lags the broader market (S&P 500), and
- They may have no defense plan and could suffer significant losses during market corrections and bear markets.
Crashes of 30% or more happen regularly in the markets (Source: CFRA and S&P Dow Jones Indices). As an investor, your primary goal should be to minimize these huge losses that wipeout your wealth while investing in assets that offer strong investment returns. A 40% crash in the markets happens about every 18 years (Source: CFRA and S&P Dow Jones Indices). Depending on when you are doing your investing this type of crash can wipe out your wealth to a point that you may not recover in time to retire when you want. It could take over a decade just to break even again. Preservation of wealth is critical to any investing strategy.
You can pursue market or above market returns with more safety by being active and having a wealth preservation plan. Famous investor, Warren Buffet, is a perfect example. His investments typically under perform the broader market during bull markets but outperforms the market over time by a wide margin. How does he do this? He limits losses during market down turns.
Another approach to investing, as opposed to the buy-and-hope approach is to invest in the right asset classes at the right time and avoid asset classes that are underperforming. Then switch to other asset classes as they begin to overperform. Portfolio management should be responsive to the market’s direction, capturing up trends and avoiding down trends.
If you want to learn more about the research based, active portfolio management strategy that I provide clients, please contact me at 307-514-0843 or email me at firstname.lastname@example.org.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.