Exclusive VS. Inclusive Investing

There are many different approaches to investing in the stock market, but most fall under two categories: exclusive and inclusive. Exclusive means conducting thorough research on prospective companies and investing in a portfolio of select, thoroughly vetted securities. One of the advantages of this approach is that if an investor’s research pans out, he could have quite a cache of high-performing “winners.”1

An unfortunate disadvantage is that most big “winners” in the market have at some point suffered declines of up to 50, 60 or even 90 percent on their way to success. That type of risk can be difficult for the average investor to stomach.2

The inclusive strategy is quite the opposite. This encompasses ETFs, mutual and index funds, wherein the idea is to diversify across securities to help reduce volatility, yet still yield a positive return on investment. The advantages are that this is usually a lower cost way of investing in a wide array of stocks, and diversification may offer a better defense against capital losses. On the flip side, however, stellar returns can get whitewashed by a batch of underperformers.3

Many factors should be considered in developing an investment strategy. We have the tools to help clients determine how much risk they are willing to take on and what types of investments are appropriate for their financial goals, investment timeline and individual circumstances. We’re here to help you analyze your personal financial situation and create strategies utilizing a variety of investment and insurance products that can help you work toward your financial goals.

One way to gauge risk tolerance is to recognize how we each react when the markets start to fall. It’s a very common, natural instinct to want to sell holdings to “stop the bleeding,” but, in fact, the opposite may be more productive. Buying when prices drop — at least well-vetted securities that are expected to recover – can be a means of achieving higher performance. But that’s not generally how human nature works. And, unfortunately, how investors react can have far more impact on performance than the economy or individual stock fundamentals. In fact, Robert J. Shiller, Sterling Professor of Economics at Yale, believes that markets are more prone to move when investors think they know how other investors will react.4

The one thing about significant market moves, whether up or down, is that they can throw a portfolio off your carefully designed plan. This is why rebalancing a portfolio, at least annually, can be an important investment strategy. However, a recent Wells Fargo/Gallup survey found that less than half of investors rebalance to restore their portfolios back to targeted stock and bond allocations on an annual basis. A bull run can be pretty satisfying as you watch your account’s market value continually increase. However, the problem with this is that an investor could be generating a far more aggressive portfolio than suited for his or her circumstances. In the event of a correction, losses could be significant.5

One suggestion is that investors should consider diversifying any position that climbs higher than 5 to 10 percent of their overall portfolio.6

Another possible strategy is to position some portfolio assets into an annuity. While the approach is slowly starting to catch on, the recently released 2017 “TIAA Lifetime Income Survey” found that only 50 percent of respondents reported being familiar with how an annuity works. However, even that finding can be deceiving. About 63 percent of participants who were invested in a target-date fund thought that it would provide a guaranteed income stream. While this is true of annuities*, it is not the case with most target-date funds. Half of those surveyed expressed interest in having an annuity option in their employer-retirement plans.7


1Barry Ritholtz. Bloomberg. Sept. 26, 2017. “So Few Market Winners, So Much Dead Weight.” Accessed Nov. 28, 2017. 
2Ibid
3Ibid
4Robert J. Shiller. The New York Times. Oct. 19, 2017. “A Stock Market Panic Like 1987 Could Happen Again.” Accessed Nov. 28, 2017. 
5Walter Updegrave. Money. Oct. 4, 2017. “Do This One Thing Each Year If You Want a Better Retirement” Accessed Nov. 28, 2017. 
6Donald Jay Korn. Financial Planning. Aug. 22, 2017. “Convincing clients to let go of huge holdings.” Accessed Nov. 28, 2017. 
7Karen Demasters. Financial Advisor. Oct. 17, 2017. “Annuities Are Misunderstood, TIAA Says.” Accessed Nov. 28, 2017.