By: William C. Fisher is president of Investment Advisory Group LLC
The common definition of “crazy” is when a person continues to do the same thing over and over and expects different results.
Professionally, we accomplish success by adapting our work to the environment and marketplace, to get the desired feedback from bosses or residents. So when it comes to investments, are you crazy?
The investment world continues to be very volatile. Investors were told to “buy and hold” and recovery would come. Many nonprofits lost 20% or more in the market the last two years and have yet to recover. This loss often was in the millions and is hard to recover through increased donations or reducing operating costs.
Investment and finance committees were often more concerned about what was lost than planning any different strategy. Does your organization have a sell strategy provided by the investment adviser? The goal is not to be a stock trader or try to time the market but rather to have a plan in place when the investment advisor knows an asset allocation change is necessary.
Most institutional investment advisors pro-actively manage asset allocation (whereas financial planners recommend annual allocation) in order to capture asset class mis-pricing. This strategy can help reduce losses but with no guarantees. I believe it is relatively easy to select some buying strategy based on asset allocation, past performance and fees. The key to succeeding in long term is having a plan to know when to sell.
Endowment funds such as Harvard and Yale, which have been leaders in diversified investing with billions of dollars for over 20 years, have recently changed their investment philosophy. They worked to lower risk and improve returns by having a sell strategy. The demand that investments be liquid was the key to exiting investments during volatile periods.
Make sure your investment adviser provides you with a sell strategy for your investments so you do not go “crazy.”
William C. Fisher is president of Investment Advisory Group LLC, a business development company partnering with some of America’s leading financial companies to provide independent financial services to nonprofit organizations.