What to Expect from Your Investment Portfolio

What to Expect from Your Investment Portfolio

John Dovich, president of John D. Dovich & Associates and Shawn Fishbaugh, chief investment officer of John D. Dovich & Associates sat down with LEAD Cincinnati in 2014 to discuss strategy for planning your financial investments and assessing your financial advisor. 

LEAD Cincinnati: What is the strategy behind choosing the initial investment?

Shawn Fishbaugh: Before we make investment recommendations to a client, we prepare a comprehensive financial plan to determine our client’s goals and objectives. Once a risk profile assessment has been completed and investor expectations discussed, an investment plan with a diversified portfolio of investments can be formulated.

LEAD: I understand that when putting together an investment plan, some investments will lose while others will gain, with the overall goal of a gain in your portfolio. Please elaborate as to what one should expect from their portfolio as a whole.

SF: One of the things about setting expectations is to understand the client’s risk profile and their cash flow needs. Diversifying is important not only in the domestic markets but also in the international markets and in a variety of asset classes, like stocks, bonds, real estate, alternative investments, etc. It is important to understand the client’s cash needs for the future in order to provide the proper balance of investments based on their risk profile.

LEAD: How does your approach differ when looking at a client who wants to invest over a short-term period versus a long-term period?

SF: The main issue we need to determine is, ‘what is the need for funds and cash flow over a period of a couple of years?’ If you have a short-term need, you probably do not want to invest those funds in risk-based assets. While investing in a low interest rate money market/savings account is unappealing, it is imperative to focus on capital preservation, since there is a specific need for these funds. For long-term investors, an important consideration is remaining invested and not trying to time the market. Risk management can be addressed through proper asset allocation rather than attempting to move into and out of the markets. This year is a perfect example of benign growth in the economy that may have led some investors to sit out the strong stock market rally. The short-term volatility of the financial markets should be less of a concern for long-term investors, whose focus should be on saving and investing during their working years.

LEAD: Is there a standard percentage of increase one can expect to see through their investment portfolio?

SF: Forecasting investment returns is always a difficult topic to address. The longer the time period in which the funds are invested, the more confidence one can have in forecasting future investment results. In planning for retirees, an annual return of 4%-6% is a reasonable assumption depending on your risk profile.

LEAD: Over a period of time, do you feel there is a lot of change needed to be made in a client’s investments?

John Dovich: Given the global dynamics in the world we live today, there has certainly been a good deal of change and I anticipate continuing change moving forward. There are constantly new products. One of the things that have become popular in the past few years is called exchange traded funds. Twenty years ago, these didn’t even really exist. The nature of markets and changes in products require a constant innovation in change relative to strategy.

LEAD: How would you describe a successful advisor performance?

SF: Though performance numbers are important, it is imperative to have a good relationship with your clients. The more information a client can share, the better equipped we are to make the best decisions on behalf of the client. But in order to build that level of comfort, we must earn their trust and that can often be an evolving relationship.

Managing expectations is very important. As you have seen in the last decade, there has been a tremendous amount of volatility in the financial markets. Volatility, in turn, can lead to an elevated level of stress and more emotional behavior during these times. To manage this, you need to set expectations for the client so they can better understand what will happen when this occurs.

JD: In too many cases, we don’t believe clients evaluate risk accurately. They are able to understand returns but are not generally thinking about what kind of risk someone’s portfolio takes to get a set return. By way of example, I have a client who earned a low single digit return during a timeframe when the stock market was strong. That client wanted to take very little risk in their investments and was comfortable with a conservative strategy. While other clients may look at that as a low increase in a rising equity market, this client was happy. Risk is key to all of this and clients should discuss risk with their advisors so they can fully understand and appreciate the returns they are getting.

LEAD: What advice would you give a client seeking financial advice?

JD: Philosophically, the client needs to understand the advisor’s strategy and the advisor needs to understand the client’s expectations. If there is not a match, you are doomed for failure. We primarily stress the importance of asset allocation and diversification. That is automatically going to imply that someone will probably not "hit a grand slam" because it is rare to see every asset class do well in a given year. Some asset classes will do well, others will lag. It is critical to match up clients who have the same philosophy as their advisor. Just by virtue of concentration, if you put all of your eggs in the proverbial basket, you are taking a lot of risk.

SF: It is interesting for the younger generation that has seen volatile market cycles. In some cases, we find their tolerance for equity investing may be lower than others who have experienced both the ups and downs. One of the educational things for younger people is being disciplined in investing longer term and not worrying about the short-term direction of the stock market. During periods of stress, it is better to have an advisor on your side because individuals have a tendency to make hasty decisions.

John D. Dovich & Associates, LLC is located at 625 Eden Park Drive, Suite 310, Cincinnati, OH 45202. You can reach them at 513.579.9400 or visit their website at www.jdovich.com. Securities offered through NFP Securities, Inc., member FINRA/SIPC. Investment Advisory Services offered through John D. Dovich & Associates, LLC. NFP Securities, Inc. is not affiliated with John D. Dovich & Associates, LLC. 

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