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Stepping Up to the Line with Best Practices for Retirement Savings

I'm sure if I were to query a group of bowling proprietors about the most important business lessons they've learned over their careers, their top 10 list would look quite similar. Running our operations, day in and day out, teaches us common lessons. For example, when it comes to customer service, anything that improves the guest experience is an idea worth considering. Showing guests you care by regularly asking for feedback or through consistently delivering a clean and safe environment, will be deeply valued, and richly rewarded. On the other hand, it's true: you can't make everyone happy, and don't take it personally when you don't. Finally, what proprietor hasn't learned the value of planning, to ensure the success of one specific event, or the rollout of a new league. The point is that over time, through failures and successes, we all learn what it takes to run our business, and to affect the best possible outcomes.

Before buying my center, I spent over twenty years working on Wall Street learning many of the "best practices" of investing, also through trial and tribulation. In launching my own investment management firm, I incorporated those as core investment tenets. I share with you some of those lessons learned.


Bowling centers rely on numerous revenue streams; bowling, food, alcohol and vending, to name a few. Investors call this diversification.

Investopedia describes diversification as "a risk management technique that mixes a wide variety of investments within a portfolio." By assembling a broad group of assets, an investor will reduce the chance of portfolio losses while simultaneously achieving higher expected returns. This is what we call a "free lunch," resulting in less bad news and more good news, simply because you hold different investments. But what kinds of investments should you own?

There are four major categories of investable assets to consider: stocks, bonds, real assets (including gold, real estate, and oil), and cash equivalents (money market funds, CDs, and savings accounts). Historically, the returns of these different asset classes have not depended on the movement of the others. That's what makes diversification so special. If one asset is performing poorly, it is likely that another is doing well. Only on occasion will everything move together.

Putting the right mix of these assets together, though, is complicated. Ideally, your portfolio will reflect two important considerations; how much time you have to achieve your investment goals, and what kind of tolerance you have for taking on risk. A portfolio balances your personal financial goals with your risk comfort level. Just because you can afford to lose principal doesn't mean you can personally stomach the losses. An ideal diversified portfolio is, therefore, also a personalized one. Some financial experts even argue that how you decide to allocate your assets is more important than which individual securities you choose to own within that specific asset class.

Passive vs. Active Management

We've now established the delicacy of putting the right mix of stocks, bonds, real assets and cash equivalents together in a portfolio to achieve optimal diversification. But as an investor, how do you know what to buy specifically and how should they be managed over time?

In response to these questions, the investment management industry was invented. It is populated by some of the most-credentialed, brightest minds. Above average compensation and competitive spirit are big attractions to high achievers. These money managers are hired by their clients to sort out the best investment ideas, from which they construct portfolios. The ultra-rich may prefer hedge fund managers, while the bulk of investors turn to mutual fund managers. The problem with either arrangement is that while these very smart individuals set out to do better than average, two things get in their way- fees and forecasting.

When you pay fees to these managers, you end up paying for the chance to make money--and sometimes, these costs outweigh any incremental returns. In Warren Buffet's 2005 annual letter, he argued that even a group of professional managers who buy their best investment ideas could not beat a group of amateur investors who put their money in an unmanaged, low cost index fund. In 2008, he put (a little of) his money where his mouth was and wagered $500,000 on his argument. Now, nine years into the bet, it would appear impossible for him to lose. This "passive" investor made 7.1% a year over this period, whereas the "active" investor made only 2.2%. On a $1 million portfolio, your genius manager would have made you $216,000, while doing nothing but putting your money in an index fund would have earned you $854,000. And the bet isn't over!

The other problem with the investment management industry is forecasting. What do the experts really know?

At Starlite Lanes, I can only guess how many lines of bowling will be played, how many pizzas will be ordered, or how many coupons will be redeemed. I've done the projections, but only once all of the day's shoes have been returned can I confirm any results. Money managers are dealing with the same challenge: they can try to predict the direction of stock or bond prices, but they can't know with certainty the future of a portfolio.

John Kenneth Galbraith sums it up well:
"We have two classes of forecasters: Those who don't know – and those who don't know they don't know."

With index investing, the human is taken out of the equation. Portfolio weightings are set, and are not adjusted further based on forecasting.

The bottom line, according to Buffet, is: "When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds." I make the same recommendation to you.

Watch for more Best Practices for retirement savings in next month's column.

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There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

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WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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