In a previous blog post (Low Interest Rates Are For Losers), I showed you one example of a bizarre investment strategy that some physicians use to manage their money.
Here's another one I encountered recently.
A physician in his mid 50s who had built up a pretty good size investment portfolio of $2 million was getting nervous about handling his investments by himself. He had seen advertisements in popular financial magazines and on TV from a large private investment advisory firm that managed tens of billions of dollars for thousands of investors. The firm’s pitch was that stocks always go up in the long run so no matter what age you are, they invested every client’s money 100% in stocks -- all big name US companies.
And of course there was the usual claim that the firm’s proprietary methods outperform the US stock market.
So the entire portfolio was invested in 30 individual stocks.
I see multiple problems with this. While stocks have gone up in the long run, there is no guarantee that they will do so in the time frame that you need the money. For example, from 2000-2009, the so called “lost decade” in investing, US stocks lost -10% of their value. Or take 2008 when a portfolio of 100% US stocks lost -37% -- or close to $750,000 on a $2 million portfolio. How likely is it that this physician would stay invested? And finally there are around 15,000 publicly traded stocks in the world. How can we be so sure that these 30 will outperform the other 14,970?
The right way to manage your investment portfolio -- whether you're doing it yourself or if you've hired a financial advisor -- is to first think through the investment philsophy and strategies and then choose which tools you will use to implement that strategy.
But many physicians and their advisors only focus on the tools and not the strategy.
If you want me to help you build and implement a long term investment plan you can start here: