Identify your UFOs

Identify your UFOs

February 23, 2023

Recently we have seen an uptick in in military activity surrounding unidentified flying objects in our country’s airspace. This does not mean that we are being invaded by aliens or that they have finally become bold enough to reveal themselves to us. At least, that's what the government is telling us. While it's great that we don't have an "Independence Day" situation going on, these floating objects have raised a level of concern about our country’s surveillance. Why are we just now noticing these things if it is believed they have been roaming our skies for a while? How many of these things have we missed or are still out there? What is their true purpose for being here? These questions got me thinking about how this translates to the investing world. Isn't it true that we often hold investments that we couldn't really identify their objective if we were asked? Maybe our investments are simply floating around with no set structure or purpose. When we work with clients on organizing their portfolios, we go through what changes, or non-changes, we recommend they make to their portfolios. The reason for this is not only because we are required to receive permission before we trade in a clients account but because we want to make sure we are on the same page before we make changes. We prefer our clients have identified all of their investments before investing in them. Do you know if you have unwanted visitors in your portfolio?


There are a variety of reasons that you should not invest in a product blindly. Yes, investment recommendation and ongoing management is part of the job you hire a financial professional to do, but you need to make sure you know the ins and outs of the investments your advisor proposes. For instance, what if your advisor recommends you invest in a Real Estate Investment Trust. REITs offer an investor the opportunity to invest indirectly in income-producing real estate. REITs differ from stocks and mutual funds in multiple ways, one of those ways is that they are often are less liquid than a stock or mutual fund option. You cannot sell out of a REIT at virtually any time as you can with equity positions. REITs are required to pay out at least 90% of their taxable income to shareholders which results in the investors receiving consistent dividends. In a non-retirement account, receiving dividends is a taxable event to be reflected in your taxable income. Now all these things are not meant to be reasons not to invest in a REIT, many have been successful doing so, but these are all things that you need to identify before investing in such a product. If you have a financial advisor, they should help you identify all of these differences before recommending you invest. Identify your investments for what they are so that you have accurate expectations for your results. What if you do not have an advisor?


There are many people who do not work with a financial advisor. Some simply have an employer-sponsored retirement plan and no other investments. Other investors are going the DIY route and choosing their own investments. In both cases, it is best to identify your investments for what they are. Let’s use the employer-sponsored retirement plan investor as an example. Let’s say this investor has a 401(k) account through work that they plan on using as a primary source of income in retirement. Their primary investment within that account is a Target-Date fund tailored to their retirement year. It would be prudent for that investor to know what a Target-Date fund is if it is their primary investment. These are mutual funds whose holdings change over time as a person’s desired retirement year approaches. The fund is managed more aggressively at inception and tapered down as retirement comes closer. Target-Date funds are readily available in most employer-sponsored retirement plans and many people are invested in them. While this is the case, they are not for everybody. There are investors who may want to be more aggressive for longer who will not be satisfied with Target-Date returns as they begin to taper the risk. This is again not a knock against this type of investment, but rather I am trying to display the importance of staying present with your investments and being knowledgeable about the things you are investing in.


One of the biggest issues that we often see retail investors have with the stock market is that they have unrealistic expectations that are not being met. Part of this dissatisfaction comes from investing in unidentified investments that an investor is using for a purpose that it is not meant for. If you want growth, you may not want to be primarily invested in bonds. If you are looking for a safe investment to preserve capital, investing in cryptocurrencies may not provide that safety. My request of you all is that you take the time to review the things you are investing in. Make sure you are asking the right questions. Do you need the money in a few years? Make sure the investment is liquid. Are you investing in dividend paying stock? Be aware of the tax consequences that of such an investment within a taxable account. Whether you have bad investments or not, make sure you know what it is that you are invested in. If you have questions about an investment idea or your current investment lineup, reach out to us! We are more than happy to help you identify your investments and give you ideas about improvements.



Content in this material is for general information only and 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.