We asked Bob Boon, Managing Director of Mascoma Wealth Management, to give us some insight into his investment thoughts.
What’s the best piece of investment advice you’ve received or given?
Diversification is the best way to lower risk and ensure you get the best returns. It’s the key to constructing any portfolio. Your investments are spread across different asset classes and different geographies, which balances out the risk and gives you the best possible return.
What’s the biggest mistake beginner investors make?
The biggest mistake is also one of the oldest in all of investing: chasing the “hot” investment. The recent GameStop frenzy was a classic example of this behavior. People chased it all the way up, not realizing that fundamentally, the company wasn’t worth what it was being valued at on the stock market. Too frequently, we see investors get into these investments too late, hold on too long, and get out too late, a double whammy that violates the old adage of buy low and sell high.
Some people may feel guilty that they haven’t done enough to save for the future and as a result, they default to inaction. What can you tell people who feel it’s too late?
Simply put, it’s never too late. The key to saving is to do it consistently. It sounds simple, but someone who saves a $1 a week has $52 saved at the end of the year. My advice is not to worry about the amount, worry about the consistency of doing it.
What is the biggest difference between younger investors who are just starting out and people who are closer to or at retirement age?
People who are near or at the end of the earning phase of their lives tend to be more risk averse. They aren’t looking to double or triple their funds—they want to retain what they have saved for all those years. Younger folks, on the other hand, can take more risk because they have years to replace any potential losses. They are looking to grow their wealth as opposed to simply retaining it. It is a significant difference, and risk tolerance is an issue we work on with our clients to ensure they understand the risk/reward balance.
What’s one trend that you’re watching?
One exciting trend since COVID became widespread in March 2020 has been the incredible growth in the technology sector. Because of a variety of reasons related to the COVID impact on the workplace, education, and consumer behaviors, technology investments have outperformed the general stock market. I think that the innovations coming out of technology will continue to drive economies globally. Look at the promise and potential of driverless cars, smart powers grids, clean energy, robotics, artificial intelligence—technology is driving many parts of the “new” economy and that is not likely to change.
On the flip side, what concerns me is the increasing interest rate environment. The 10-year treasury was .60% on September 1. Today it’s 1.45%. That increase is concerning because rising rates would put a damper on the stock market in general. The Fed has been very vocal about keeping interest rates low, yet in spite of their efforts, the rate is rising, which is a concern. At MWM, we help clients navigate this rate environment by monitoring everything that is going on daily and trying to position portfolios appropriately. In fixed income, for example, we have reduced the duration of fixed-income investments from 6 years to 1–3 years to offset the effects of rising rates. In equities, we are monitoring Exchange Traded Funds (ETFs) that benefit from rising rates.
We focus exclusively on ETFs and use a combination of passive indexed and actively managed ETFs. This gives us the trading and tax advantages of individual securities while providing broad diversification at the lowest possible cost. As everyone knows, the less one pays in fees, the better your return on assets. By using only ETFs and keeping our fees low, we can differentiate ourselves from other firms in the market. We also developed very attractive ESG investment models using ETFs for those investors who want to apply environmental, social, and governance principles to their investment strategy. We will do a deep dive into those with a future post.