When you see a trade notification pop up in your inbox or show up on your monthly statement, it’s natural to wonder what is happening on the other side of the screen.
Whether the market is hitting new highs or feeling a bit like a roller coaster, our investment team is constantly working under the hood. We recently sat down for a quick conversation to give you a peek behind the scenes into what our team is actually doing with your account.
I asked Mike, who heads up our investments team, five of the most common questions we get from clients, including:
- Why are we making trades when the market is doing well?
- How do we handle the “noise” of the daily news cycle?
- What are we looking for when we vet the funds in your portfolio?
- How do we look for tax-saving opportunities during market swings?
- How do you take the emotion out of investing?
We hope this gives you a better sense of the daily work going on to keep your portfolio aligned with your long-term goals.
If anything in the video sparks a question about your own accounts, please give us a call. We’re always happy to walk through the details with you (785) 340-3434.
Transcript
Cal: When you see a trade notification hit your inbox, your first thought is probably, “Wait, why are they selling that?” Especially when the market is doing well. I’m Cal Shimkus with CGN Advisors, and today I’m sitting down with our Managing Principal of Investments, Mike Greim, to give you a peek into what our team is actually doing with your account on a daily basis.
Question 1: The “Why” Behind the Trades
Cal: So, Mike, when you see or when clients see a trade notification, their first thought is often that we’re reacting to the morning news. Is that what’s happening, or is there a deeper “why”?
Mike: That’s a great question, Cal. So we really try to maintain integrity with our client portfolios. We’re setting our client portfolios up with tolerance bands around different asset classes, asset types, securities, so that we understand that portfolios are going to drift here and there. And so we do want to trade, though, when portfolios drift outside of tolerance. And so that allows us to naturally keep portfolios from becoming either too risky or too conservative over time.
Cal: That makes sense. So really we’re just trying to stay on the tracks that we’ve already laid out for the portfolio.
Question 2: Trading in a “Good” Market vs. a “Bad” Market
Cal: Does our actual process for trading look different when the market is hitting record highs versus when it feels like a bit of a roller coaster, especially in recent times?
Mike: You know, the reasons might feel different given, obviously, markets being up or markets being down. But really the process is identical. We’re identifying portfolios that have drifted too far outside of where we think that they should be allocated. And, you know, in a good market, we’re going to use that as an opportunity to trim some winners, if you will, and lock in gains. And then when the market’s down, we’re often going to be potentially buying the dip, as you might think about it, and rebalancing the portfolio into undervalued areas of the portfolio. It’s a systematic way that allows us to kind of buy low and sell high without any kind of emotional guesswork.
Cal: So the math stays the same, even if the headlines don’t.
Question 3: The Role of Tax Efficiency
Cal: And speaking of the math, another area where we spend a lot of time is on the tax side of things. How does the investment team use these market swings to help a client’s tax bill at the end of the year?
Mike: In any given year, whether the market’s moving in a general up direction or if it’s a little bit more volatile or moving down, there are often parts of the portfolio that aren’t performing as well as others, providing some level of opportunity for us to trim something at a loss or sell something at a loss, a tax loss. That lets us potentially then offset future gains. That’s referred to as tax-loss harvesting. So it’s kind of a way to kind of find a silver lining in a market environment that might be more volatile or trending in a downward direction.
Question 4: Tuning the Engine (Due Diligence)
Cal: And beyond the trades themselves, I know you’re spending a lot of time looking at the actual ingredients we’re using. What is the investment team doing to vet the funds and managers inside our portfolios? How do we know the parts of the engine that are still the best ones for the job?
Mike: On an ongoing basis, we’re going through a constant review process or kind of an auditing process, if you will, of all the different investments in the portfolio, whether that’s an ETF, exchange-traded fund, or some other type of fund. It could be individual securities in the portfolio. So we’re constantly reviewing the holdings in the portfolio to identify, is there something that would be more tax efficient, something that we could access a similar part of the market at a lower cost? Are the managers themselves sticking with their plan, their strategy? Is this something that maybe they’re shifting styles because of the winds of change, or the winds aren’t behind their back and their style. So if a manager does happen to change their style, that might be an opportunity where we would potentially sell that strategy or that fund from the portfolio and replace it with something different.
Cal: That makes sense. So, basically, it’s an ongoing audit of every position in the portfolio.
Mike: That’s correct.
Question 5: The “Steady Hand” (Behavioral Discipline)
Cal: And my last question here: When the headlines get loud and things do feel uncertain, how does our team’s process help protect the client from that emotional side of investing, the urge to make a move just because they’re nervous?
Mike: It’s interesting. This is always fun to look back on after the year. We look at these charts called “the wall of worry” that show everything that’s happened throughout the course of a year. And every single year, there’s always something to be worried about. Multiple things that catch our attention that cause us to be concerned. That could be anything from inflation or elections or global events like we’re seeing today. So our job really is to filter out all that noise. Over time, what we found is that the most damage that happens in client portfolios is when investors react to headlines, when they do something opposite of what their long-term plan would otherwise have them do. And so we really kind of act as a little bit of a circuit-breaker, if you will, to help keep the client’s portfolio invested in line with their long-term plan. While the world is reacting to today’s news, we’re looking further down the road, whether that be three, five, 10 years down the road. And our discipline for our client’s portfolios ultimately ends up being one of the client’s greatest assets.
Cal: Mike, thanks for the insight. It’s helpful to remember that while we can’t control the markets, we absolutely can control our process. If you ever see a trade in your account and want to know the specific why behind it, please reach out. We’re always here to work with you and walk you through it. Thanks for watching.
To schedule a meeting, call 785-340-3434.