The key word is “Diversify.”

In modern terms, “amongst seven or eight” means that any wise investor should have at least seven – and preferably eight – different allocations of resources. By percentages, that means you should deploy no more than 14.5% (one-seventh) of your total investments into a single source.

A friend told me of a close relative who placed a great amount of his wealth in Enron stock as the company’s shares shot into the stratosphere in late 2000. The relative was amazed at the rapid rise of his investment – until the house of cards crashed in 2001. Fortunately for him and his family, he had diversified into other investments, due largely to the insistence of his financial advisor. The investor fell in love with Enron’s soaring stock price, but his financial advisor preserved an even larger portion of his funds by diversifying.

Today’s inflation and general discomfort with the markets are leading investors to challenge their traditional way of thinking. They ask what alternatives exist to stocks and bonds because they feel they have too much exposure to this volatile stock market.

Investors should think back to King Solomon and diversify beyond stocks and bonds. They need to consider what we call Tangible Real Assets. These are also known as alternative investments, and may include:

• Agriculture (farmland, livestock, timber, etc.)
• Infrastructure (data and digital networks, renewable energy)
• Business essential equipment
• Real estate  (apartments, self-storage, hospitals, mobile home communities)
• Natural Resources (water, oil & gas)
• Distressed assets

The benefits of these Tangible Real Assets include:

• Showing a low correlation with the stock and bond capital markets
• Generating high-quality cash flow with better collateral or controls

An emerging element in financial services today is “Impact Investing,” where investors choose to support projects and industries that align with their own personal values and beliefs. These strategies allow investors to allocate funds to projects and causes that they feel make a community difference in addition to making a profit.

Large numbers of investors are reviewing their mutual funds, only to discover that they are not philosophically aligned with some of the investments that diversify their funds. These investors are asking questions and many of them are redirecting their funds.

Right now, traditional investors are nervous – the S&P 500 Index lost 20.6% of its value in the first half of 2022. This rapid decline marks the worst first-half performance of the index in 52 years.

Even if investors chose diverse stocks, it’s likely that they are still down in double figures. The solution: diversify into different sectors and deploy funds into well-researched asset classes such as Tangible Real Assets.

Here are six points to consider with your investments moving forward:

1. Realize that what worked yesterday might not work well in the future: Concentrating solely on stocks and bonds locks you out of other higher cash-generating investments.
2. Understand that investors need a safe haven – asset classes that can protect them from the ups and downs in other parts of their portfolios.
3. Consider Tangible Real Assets – also known as alternative investments – that provide insulation from the gyrations that may occur during an inflation-driven economy.
4. Invest to align your portfolio to your values and beliefs by selecting assets with a positive return and a positive impact on communities.
5. Create a team – you should want input from your financial advistor as well as your CPA, attorney, key staff, or trusted advisor so the investor has a team of experts to manage any complex financial scenarios.
6. Develop short and long-term plans for your financial future so you can measure results against projected goals; a decision-point process helps clients gather all of the facts, review their options, weigh potential outcomes, and make solid decisions.

As you analyze your investment portfolio, I encourage you to share this information with your financial advisor. Diversifying into new asset classes is one of the best methods of protecting your future. The best investments offer you a way to have a safe harbor for your investments while also offering the upside of positive cash flow and appreciation.

Clint Snead is president of Box Financial Advisors in Grapevine, a 12-year-old company affiliated with one of Grapevine’s oldest businesses, Box Insurance.

BY CLINT SNEAD, CFA®
BOX FINANCIAL ADVISORS