What’s the secret to building wealth? What sets successful investors apart from the crowd isn’t a complicated or secret formula, says Bill Hornbarger, chief investment strategist for Moneta Group, a wealth management firm. He says there are four keys to a successful investment plan, and none of them is rocket science. “I think everybody tries to make it a little more complicated than it is,” he says. “But if it were simple, everybody would be successful. There are some basic things that can give you a good head start.”
First, studies show that managing fees and expenses associated with investments can boost returns. “If you’re paying someone 1 percent, that’s money that could be in the marketplace,” Hornbarger says. But managing fees isn’t the same as avoiding them. “You’re going to pay expenses for investment managers,” he explains. “If you’re getting value for what you’re paying, that’s fine.” Too often, people invest passively, he says, never asking about fees or assessing their value.
Second, be resistant to panic and euphoria. Avoid emotional reactions to changes in the market, and always stick to your investment plan. “If you’re an aggressive investor, you should be an aggressive investor regardless of what’s happening around you, whether stocks are up or down 30 percent,” Hornbarger says. This can be easier said than done, he acknowledges, but a good financial adviser can help hold your hand through the turmoil.
Hornbarger’s third attribute for success is diversification. He says a portfolio is truly diversified when its owner is always unhappy about the performance of some portion of it. Contrary to popular belief, he says, diversification is not simply a mix of small cap, large cap and international stocks. It’s about technical attributes, such as correlation coefficient and draw-down tendencies, which move independently to smooth out a portfolio’s performance over time. “If all the pieces are directionally moving together, then you have a greater amount of risk,” Hornbarger says.
Finally, a sound investment plan relies on disciplined rebalancing. For example, a portfolio designed to be equally invested in stocks and bonds will be out of balance if the stock market goes up 20 percent in one year. To restore order, it’s necessary to sell some stocks and invest in bonds. The habit of constantly re-evaluating investments forces investors to make better decisions, he says. “Having a plan takes some of the guesswork out of investing. We all say we want to buy low and sell high, and that’s what disciplined rebalancing forces us to do.”
Pictured: Members of the in-house Investment Department, from the top left: Dan Brown, Chris Jordan, Bill Hornbarger, Geoffrey Eikmann, Rich McDonald, Luke Ferraro
Featured photo: Bill Barrett
Cover design by Allie Bronsky | Cover photo courtesy of Moneta Group
[An independent wealth management firm, Moneta Group provides financial planning services to affluent clients with complex financial lives. With offices in Clayton and Chesterfield, Moneta Group manages more than $14 billion in assets, making it one of the top investment adviser firms in the country. For more information, visit monetagroup.com or call 314.726.2300.]
