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Stepping Up to the Lines with Best Practices, Game Two

In my May column, I started a list of "Best Practices" that I learned from my career on Wall Street to guide you and your retirement savings. Here's a refresher: Diversification is the single most important concept to understand before building a portfolio of investments. Investopedia defines diversification as "a risk management technique that mixes a wide variety of investments within a portfolio." Implementing this strategy allows an investor to achieve higher returns with less risk. We referred to this benefit as a "free lunch". Employing a passive versus active investment management approach is another best practice. Instead of buying individual stocks or bonds (active), passively investing can keep costs down and lead to better long-term performance.

Here are this month's tips for achieving improved investment outcomes:

Low expenses

There are two expenses you must consider when a professional manages your savings. The first is the fee you pay directly to your advisor for their advice; the second is the fee you pay a money manager to make investment decisions with your money. Typically, advisor fees are expressed as a percentage of the portfolio value, or alternatively, charged through commissions. While there are pros and cons to each arrangement, there is, generally, less room for abuse when you are charged a percentage fee. In a commission-based arrangement, there is always the risk that the advisor acts in their best interest, not yours, and transacts purely to generate a commission for themselves. It's perfectly acceptable to ask your advisor if they are acting as a fiduciary (the highest standard of service) or just making suitable recommendationsin your best interests. Regardless of how the advisor is paid, their job is to guide you toward reaching your investment goals.

The outside manager is where costs can turn murky. This is particularly relevant when it comes to mutual funds, a favored investment vehicle used by advisors for many of their clients. If you own a mutual fund, then you are probably familiar with the thicker-than-a-novel prospectus that accompanies the purchase. And don't expect a clear section that details expenses. The investment management world, unfortunately, does an outstanding job of hiding its fees. Whether they are called front-end loads or 12 B-1 fees, they are just industry jargon with price tags attached. Your mutual fund could cost even more than your advisor's fees. This is why Warren Buffet praises low-cost index funds: they spare you hidden fees.

Consider this math: Two investors start with $1 million dollars in savings. They both achieve the same 6% annual return on their investment. One chose an advisor (1.0% fee) who used low-cost index funds charging 0.25% per year, a total of 1.25% per year, the low-cost example below. The other turned to an advisor (1.0% fee) who then uses a highly recommended mutual fund manager (1.25% fee) to manage their money, a total fee of 2.75% per year, referred to as "high-cost" in the example to follow. Over the following time periods, here is what happened:

Conclusion? Fees matter. You should do everything you can to minimize them. Think about your Center's repairs and maintenance. Would you ever consider locking yourself into what could be a lifetime of overpaying for what is essentially a commodity product?

Rebalancing A portfolio should reflect the risk tolerance of its owner. Advisors will work with you to ensure that, or you can do it on your own. In either case, once you have assembled your diversified portfolio of low-cost investments, there is little left to do but wait. Only under certain circumstances will you need to rebalance. Check your portfolio for changes no more often than every three or four months. In fact, we would suggest as little as one time per year.

The reality behind diversification is that some asset prices will go up while others go down, resulting in a portfolio that is no longer properly diversified, possibly too risky, or maybe even too conservative. One of the hardest psychological investment challenges is selling your investment winners and buying more of your losers. But by rebalancing in this way, you bring your portfolio weightings back to your original asset allocation. The corollary to bowling would be systematically building your open play business at the expense of league bowling. This summer, Starlite Lanes will host just one unsanctioned summer league, but open play promotions will grow dramatically.

Another reason for changing your mix of investments is a change in your time horizon, or when you'll need access to your savings. Most typically, as we age and approach retirement, we need to be more conservative with our savings. Simply put, there is less time left to build back portfolio losses. Rebalancing with more bonds and cash equivalents will protect an investor from the risk of market declines as they enter this period of their lives.

Time in the Market

The longer you invest in the market, the more you will earn. Over time, patience and inaction are rewarded. Here at Starlite Lanes, we are celebrating our sixth year in the Kids Bowl Free program. When Bowling Business Builders International initially presented the idea, I was skeptical. Why would we give away our core product for free? Wouldn't that diminish its perceived value? Wouldn't revenues suffer? Still, I gave the program a chance. And while things did start slowly, they built up substantially over time. Today, not only does the program generate great revenue through ancillary sales, but it has also been a foundation for growth in other areas of our business, especially our youth league participation rates.

Unfortunately, individuals aren't geared to stick around and wait for results. Instead, they feel like they need to "do something" to achieve superior outcomes. That's a real risk when market returns are often concentrated and achieved over short periods of time. Missing a few days or weeks of positive returns because of impatience can set an investor back permanently. Think about it; how many famous market timers can you name? None? How about long-term investors? Warren Buffet, Peter Lynch—you get the idea. Whether it is bowling or investing, great investments take time and patience to reach fruition. Jumping from one to another, misses the opportunity to grow something special.

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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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