Diversification is like making Cheesecake.

Use the Right Ingredients and Follow the Recipe

I unknowingly started a tradition 4 years ago.  It all began with making a cheesecake for Mother's Day for my wife, mother and mother-in-law.  Since I do not consider myself talented in the kitchen, it was a complete stab in the dark to attempt this...very much outside my comfort zone.  The cheesecake ended up being a big success and now it is a tradition.  What I discovered was that, by following some good advice from my wife and following a specific recipe precisely, the results were considered the "best cheesecake ever eaten."

Diversification is like making Cheesecake.

You have to have the right ingredients, mixed together properly with the right timing to get an excellent cheesecake.  This is also essential in the diversification of your investments.  Diversification is equated to the proverbial"don't put all your eggs in one basket."  While this is true to building a well-diversified portfolio, there is much more to it.  Let me explain some key principles.

"Diversity reduces adversity."

-Burton Malkiel, Princeton Professor and Economist

Don't Put All Your Eggs in One Basket.  Diversification seeks to spread the risk out into various investments (that have low correlation), thus reducing the volatility of a portfolio.  Think of diversification like the shock absorbers on a car, smoothing out the bumpy (volatile) ride of financial market roads.

Get the Right Asset Mix.  Variety is obviously important but the % allocation is important.  Factors based on your personal risk tolerance, goals and time horizon help direct this.  This is where your financial plan is essential.

Don't Over Do It.

  Yes, you can have too much of a potentially good thing (like cheesecake)- it is called "over-diversification."  This is a common problem.  Spreading yourself too thin will likely mute your return.  The focus should be on a variety of assets that are good quality, not the quantity.

Diversify Within Each Category.  Your stocks should include the proper allocation of US stocks and International Stocks between large, mid and small sized companies.  There are literally dozens of categories of bonds between Government, Corporates, Foreign, High Yield, Etc. Consider Real Estate, Commodities, Alternatives and Cash as other important diversifiers.

https://www.raymondjames.com/legal-disclosuresbetween Government, Corporates, Foreign, High Yield, etc.   Consider Real Estate, Commodities, Alternatives and Cash as other important diversifiers.

Evaluate Other Allocations.

  Do you have a large portion invested in your company's stock?  This is likely a risk because you are over diversified between your gainful employment and your investments being tied so closely together.  How about real estate?  If you own rentals and properties you likely don't need real estate investments in your portfolio.

Timing is Key.  Have patience and give it the correct amount of time.  Diversification works over long economic cycles.  Also attempting to time the market can't be consistently achieved, despite what some people say.  Dollar Cost Averaging (regularly placing money on a monthly basis) can also be an effective method for investing your portfolio.

Diversification is a delicate balance of the right investments and the right time-frame.  Utilize certified professional advice in making diversification work inside of your financial plan.

Enjoy some cheesecake too!  Mine is not for sale- I only make it once a year and it goes quickly.

All the best in your planning,

Luke Fields, CFP®

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material and does not constitute a recommendation. Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Diversification and asset allocation does not assure a profit or protect against a loss. Investing involves risk, you may lose you principal. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels.

About Stewardship Cents 

Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it.  Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have.  Stewardship is a belief of responsible overseeing and protecting of important resources.Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981.  A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is aCERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses.  He resides in Columbus, OH with his high school sweetheart, Beth and their three children.  Luke is an active member of his church, serving in leadership and finances.

Follow additional insights and connect onLinkedIn,Facebook, hisblogorTwitter.You can always reach him with comments or questions at:luke.fields@raymondjames.com.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC

Spring Clean your Finances

Spring Clean your Finances

Similar to many of you, I grew up with the annual tradition of "Spring Cleaning."  Every teenager's idea of a great day.  Open the windows, clean the crevices, throw out the junk, and organize the closet.  Now that I'm grown up (that is debatable in some circles) and own a home, the funny thing is the same habit is still with me and I actually like it now.  Things sure change.

The old cliché of Spring Cleaning originated in China as people cleaned their homes around the start of the lunar New Year.  Spring was also a common time of year to clean per Jewish customs as Passover approached in April.  Whatever the reason, it is not a bad idea to get things cleaned up and prepared for warmer weather.  As you clean out the garage, "de-clutter" the house, throw away those old "Cosby" sweaters and organize the basement don't forget to apply the same care to your finances.

"Have nothing in your house that you do not know to be useful, or believe to be beautiful." 

-William Morris

How to Spring Clean your Finances

1.)  Clean up your Investment Portfolio.  Year end is a great time for review in regards to taxable events and Spring is a wonderful time to make sure your investment accounts are healthy.  Consider cleaning out (sell) the "dogs" in the portfolio, re-balance overweight or underweight categories.  You don't want too many eggs in one basket or not enough diversification in other baskets.  Make sure your portfolio is in-line with your current risk tolerance.  Another common situation; are you keeping too much cash in the bank (likely at low interest rates) that you are not planning on needing anytime soon?

2.)   Organize the Files.  File cabinets are notorious as dumping grounds.  You know that important piece of information is in there... you are just not sure where.  Files also include your electronic files.  As you wrap up tax time, consider scanning prior tax years on a secure hard drive.  Previous advice was to shred after 7 years but a digital copy may be handy if the IRS ever comes knocking.  Consider shredding other unneeded documents (make sure to use a cross cutting model).  Remember to organize and clean out your wallet while you are at it.

3.)   Review your Security Measures.  I bet you keep your house locked and use an alarm when asleep or on vacation.  The same security should be true for your computer, your personal identity, file cabinets and a fire proof box or safe.  Consider investing in a good self-updating anti-virus software, identity protection services, and a safe (possibly even bolted down to the floor) in a discrete location.  And please don't forget to update and change the numerous passwords you use.

4.)    Purge and Update your Family Budget.  I hope you have established a budget, if not get on it!  Check your line items to see if they are still accurate- spending more or less in a category?  Have a new expense or an old one to remove?  Know where your money is and where it is going at all times!

Happy Cleaning- both your home and financial house.

Luke Fields, CFP®

Re-balancing a non-retirement account could be a taxable event that may increase your tax liability. Diversification does not ensure a profit or guarantee against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James.

About Stewardship Cents  Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it.  Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have.  Stewardship is a belief of responsible overseeing and protecting of important resources. Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981.  A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses.  He resides in Columbus, OH with his high school sweetheart, Beth and their three children.  Luke is an active member of his church, serving in leadership and finances. Follow additional insights and connect on LinkedIn, Facebook, his blog or Twitter. You can always reach him with comments or questions at:luke.fields@raymondjames.com. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC Join Our Mailing List

Manage the Risk

Manage the Risk

Here is a hypothetical story of a stock owned by a successful business man, a seasoned investor. We will call him Paul. This was a stock with opportunity for growth- the boys on Wall Street loved it and it had been on a "tear," showing no sign of stopping. Paul excitedly buys a large portion in his portfolio expecting the stock to continue its trajectory "to the moon." All goes as planned; he is up 15% in a few weeks... Then it happens. The unthinkable- his stock goes down and down and down again. The once "sure" stock selection is now down 40%. Not so exciting now.... What if Paul said "ok no problem, I only need it to go up 40% to break-even!"

Do you believe him?

Well if you do- that is okay, many people do at first glance.  Here is the reality: Gaining 40% won't get him back to even....  The gain needed is +66.67% (FYI- if the loss is 50%, you need +100%)!  This is the power of percentages.  We have all been there at one time in our lives. This story exposes the necessity to manage risk.

Anyone Can Pick Investments, Few Can Manage Investments

The professional planning around investments requires considering the big picture: your goals, time horizon, true diversification, estate plans, taxes, the current economic outlook and most importantly the real acceptable risk to you.   Many people acknowledge risk, "sure it can go down"... however most never accept risk, "I can afford to lose $xxx."  Risk is real.  It is necessary.  And risk is okay, when the framework of investment management focuses on it.

Benjamin Graham, considered the father of value investing wrote,

"The essence of investment management is the management of risks, not the management of returns."  

• Use the big picture- your financial plan to select and manage your holdings Don't commit a large percentage to a single investment holding, diversify Use stop losses (an order to sell at a certain price that helps manage a holding in the case of a price decline) Don't marry yourself to an idea or stock

In the current market environment with the Indexes hitting all-time highs, now is the time to know what risk is acceptable to you and preserve accordingly.  We've seen great growth the last several years, but you need to manage the risk in your portfolio.  Yes, the market may continue to grind higher but what if it doesn't?  Is your true acceptable risk alright with you?  Make sure your primary goals are achieved.  Is your goal capital preservation, income generation, or long term growth for retirement? Seek professional and appropriate advice to have your portfolio evaluated and find your acceptable risk....  You can often hear me say, "If you appropriately manage the risks the returns will take care of themselves."

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results. The example provided is intended to be a hypothetical illustration only, and does not represent any investor account or experience. Individual results may vary; Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification. You should discuss any tax or legal matters with the appropriate professional.

About Stewardship Cents 

Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it.  Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have.  Stewardship is a belief of responsible overseeing and protecting of important resources.

Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981.  A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses.  He resides in Columbus, OH with his high school sweetheart, Beth and their three children.  Luke is an active member of his church, serving in leadership and finances.

  Follow additional insights and connect on LinkedIn, Facebook, his blog or Twitter.  You can always reach him with comments or questions at: luke.fields@raymondjames.com.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC