When I walk into my local supermarket, magnificent smells of freshly cut flowers and a sea of fruits and vegetables welcome me. Further on, I encounter the aroma of baked bread, cookies, and cakes. My senses are overloaded, and I have yet to start shopping.
A supermarket layout is science-based, but pomp and circumstance also play a significant role in our shopping experience. It's full of vibrant colors, smells, and sounds designed to keep us moving as we fill our shopping carts. The items we need are located in the back; the things we want are near the front. End caps display new or seasonal products designed to catch our attention. Between the front door and the milk section, we encounter presenters offering us free food and drink samples while introducing us to a new recipe or cooking trend. If we make it through the aisles unscathed, we must pass one final test – the checkout stand. While checking out, we stare at soft drinks, chips, candies, and tabloids, all impulse buys. I always shop with a list, and I never enter a grocery store while hungry to avoid the subtle traps.
Investing is similar to grocery shopping – a lot is going on, so a plan is recommended. Investing without one is like entering a grocery store without a list; if you're not careful, you can get into trouble. A financial plan keeps you focused on your goals and helps you avoid distractions that may derail your future. It can also limit impulse purchases of investments that don't belong in your financial basket.
We need staples to survive, like fruits, vegetables, meats, eggs, milk, etc. We don't need peanut M&M's, but they're fun to eat on occasion. A portfolio designed to last generations needs a strong core of globally diversified high-quality stocks and bonds. An appropriate allocation for your core holdings is 85% to 95% of your total balance. Invest the remainder of your account in high-flyers, seasonal trades, or alternative investments if you want to give your portfolio a boost.
The center aisles are a mix of, well, mixes, packaged foods, and canned foods; ingredients developed to enhance your meals. Portfolios require supporting investments as well. Small-cap stocks paired with large-cap companies mixed with a few bonds is a recipe for success.
My wife can make the rounds in our grocery store with her eyes closed, which is good and bad. She is an efficient shopper, but it's possible to become complacent and ignore new items or products - investors who are pococurante risk missing new ideas or opportunities. If you let your portfolio get stale, you may fall behind your stated goals. I recommend reviewing your holdings and your plan two to three times per year to stay up to date with new trends. Avoid putting them on auto-pilot.
Should you avoid end cap displays or check out items? No. These sections of a supermarket can introduce you to bargains, new products, or reflex purchases. They can also bring some fun to your shopping experience. Investing in seasonal trades, speculative stocks, or alternative investments may bring you joy if they work. Limiting your purchases to 3% to 5% of your portfolio value will avoid pain or destruction if you're wrong.
When I was fifteen, I worked in a small grocery store with some friends. I earned $2 per hour and learned much about stocking shelves, bagging groceries, and watering produce. I was continually moving from one aisle to the next. It was our job to ensure the store looked good at all hours. It was a good primer for my chosen career.
As you build your shopping investment list, include a basket of large, small, and international companies. Add a mix of bonds, real estate holdings, and alternative investments. Rebalance your accounts annually and review your plan often. Think generationally, but pay attention to short term opportunities. A balanced portfolio based on your financial goals will treat you well over time.
Anyone who believes the competitive spirit in America is dead has never been in a supermarket when the cashier opens another checkout line. ~ Ann Landers
January 25, 2021
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.