The Foster Family Office Group’s Approach to Long-Term Investing: In the world of investing, it’s reasonable to expect that if you’re going to put your money into something with wild price swings, you should expect higher returns over time.
This is the trade-off stock market investors deal with every day: the potential for great returns over time, tempered by the reality of significant ups and downs.
So, if you’re investing for the long haul, should you just tune out the news, close your eyes, and go all-in on stocks? Well, the answer is both yes and no.
If your investment horizon stretches very far into the future, you can certainly afford to allocate more heavily into stocks than someone who might need to access their funds in a few years. You have the advantage of time to weather the market’s inevitable storms.
However, there are important limits to this approach. Here’s why:
1. The Stress Factor
If you’re responsible for managing your family’s wealth, the pressure is enormous. When markets are down, everyone will want to know what you’re doing about it. Doubts will arise: Are you making the right decisions? Are you still on the right track? If there are doubts about your stewardship of the family’s nest egg, misery ensues.
2. The Harsh Math of Losses
A significant drop in stock values can severely damage your portfolio, reducing your capital base. Recovering from a big loss isn’t as simple as bouncing back with the same percentage gain. Don’t forget, if your portfolio drops 50%, you’ll need a 100% gain just to break even.
3. The Blame Game
Stocks are often considered the best investment for the long term. But when they take a 50% dive, it’s easy to start questioning your commitment to them. The temptation to abandon the stock market at its lowest point is strong—and that’s usually when you’d benefit most from staying the course.
4. Self-Doubt
A sharp decline in your portfolio can shake your confidence. It’s tough to keep investing new money when you’re already seeing losses. Market downturns often end with too many investors holding too much cash.
5. Cash Calls rarely come at a Good Time
If the economy goes into crisis, unexpected needs for cash can often arise at the very same time that the market is down. If your portfolio is down 30% while someone close to you needs their business bailed out, or a credit line gets pulled, this can be a nasty one-two punch.
Given these considerations, the Foster Family Office Group constructs portfolios to be much volatile than the stock market while targeting similar long-term returns. Our goal is for our client portfolios to experience less than half the volatility of the broader market. If the stock market is down 30%, for instance, we strive to keep our client portfolios from declining more than 15%.
This is a standard we’ve successfully maintained since the beginning.
By focusing on reducing volatility, we aim to provide peace of mind and stability, helping you to stay invested for the long haul without losing sleep over market swings.
Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice. Everyone’s situation is unique, and this article cannot apply to every person. The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.
