If you missed our webinar earlier this month, you’re in luck!  Click this link for playback of the Preserving, Protecting, and Enhancing Wealth in the New Normal webinar. Slides, audio, and tips.

Sorry you missed the ‘live’ webinar, we’ll let you know when our next one will be.  In the meantime, do you have any questions or feedback for us?

It’s the third Friday, which means it’s our third and last guest sports blog!

Guest post by Daniel McGilvray, vice president of investments, Highland Capital Management

During the U.S. Open at Pebble Beach a month or so ago, Dustin Johnson lost a three shot lead going into the final round on Sunday and actually ended up outside of the top 10. Justin Rose followed the week after at the Travelers Championship by blowing a three shot lead over the rest of the field and did not end up even coming in the top five. Both of them seemed to lose the strategy that got them to the top of the leader board in the first place. They went from making great shots to getting cautious to making horrible shots to try to make up for the cautious shots and losing the lead. Contrast that with what happened this past weekend with a virtual no name in golf: Louis Oosthuizen. He went into the final day of the British Open at St. Andrews leading by four strokes and actually EXTENDED his lead by a few strokes on the final day. While he adjusted his strategy to be slightly less risky, he stuck with his overall game and did not get too cautious.

It can be the same way at times in investing…we stray from our originally intended strategy because things get “too bad” or there’s a new “normal” or new “paradigm”.  At Highland, while we make tactical over weights or under weights at certain times, we work hard to come up with the right strategic targets for clients as the anchor to ensure that the underlying investments do not stray too far from target (high or low) and get too far away from the originally intended strategy. Without those “anchors” to make sure you don’t stray too far from the original strategy, you could easily end up losing all the gains you’ve made and possibly even going below what you originally had if there is no process to assure some money is taken off the table and gains are harvested (or that funds are added to those areas that underperform over an extended period of time).

In this manner, an investor can ensure that they do not lose the lead (or are unable to ever get back losses). An obvious example of this is the advisor/investor who gets conservative near the bottom of the markets or aggressive near the top of the markets. Bad timing in either account can cause losses to persist. So remember, stay anchored to your long-term strategy.

It’s Friday, which means we’re bringing you part two of our three part guest blogging sports series!

Guest post by Daniel McGilvray, vice president of investments, Highland Capital Management

While watching the U.S. soccer team in the World Cup, it was interesting to note that essentially every single game (with the exception of Algeria which should have had an early goal, but their shot hit the cross bar), the U.S. got behind within the first 10-15 minutes and were playing from behind the rest of the game. I’m 100 percent sure the U.S. did not come out with a plan to get behind right away, but it did seem to me that for some reason they played MUCH better when they were behind. I’m not sure if it was just a greater sense of urgency, or what, but either way, the coach obviously did not do what he needed to do to get the team to come out ready to play from the moment the game started.

I think that it’s the same way at times in investing. Until people lose a certain amount of money in their portfolio or are really “forced” to have to do something with their money, at times, they would prefer not to think about it and just “let it ride”.  It’s important to take into account all of your investment psychology, history, thoughts, goals, dreams, needs, wants, etc. before setting up your long-term strategic asset allocation targets and work with you to determine the right set of parameters. While we also remain “in the game” after strategic targets have been determined by making tactical moves in/out of certain investments or over/underweighting certain asset classes, the overriding principle of the portfolio is the strategic asset allocation.

Do you know what your long-term strategy should be? Are you comfortable with being “in the game”? If not, maybe you don’t have the right plan, or need to collaborate more with your investment advisor to come up with the right one.

It’s Friday, which means we’re bringing you part one of our three part guest blogging sports series!

Guest post by Daniel McGilvray, vice president of investments, Highland Capital Management

Many of you may have seen a portion of, or at least heard about the longest match in tennis history, which was played a few weeks ago at Wimbledon. Unless you are a tennis player however, you may not realize exactly how in the world this happened.

Basically, each of the players had a great serve and not a very good return of serve so neither could ever beat the other one on their serve. In fact, there were 215 aces in the match with each player serving over 100 aces! With a typical game being the first one to get four points and a typical set being the first one to get 6 games that means both John Isner (who finally broke serve in the 138^th game of the 5^th set to win it) and Nicolas Mahut each won over four sets on aces alone! In fact, this match could have gone on forever if it weren’t for exhaustion because without a tie breaker in the 5^th set if someone doesn’t break the other persons serve the match would literally go on forever and no one would ever lose (or win).

There is a term and strategy in investing which is very similar to holding serve in tennis; it’s called passive investing. With it, you will never underperform the benchmark (assuming the investment vehicle you use tracks the benchmark closely), but you also will sacrifice any opportunity for outperformance. This is precisely why we, and many other investment firms, have a “core” holding in passive indexes for one, or many, asset classes to provide the “beta” in the portfolio. The strategy allows you to at least meet the benchmark on a portion of your portfolio at virtually no cost.

To win a tennis match, however, one has to break serve. Similarly, to beat the benchmark, a portfolio has to take some deviation from the benchmark. This is commonly known as active investing or providing “alpha” to the portfolio. At Highland we do this by trying to pick the best active funds over both a long period of time and recently and those that have a fairly consistent history of beating the benchmarks in their respective categories. We also watch our funds closely for any changes in management, changes in strategy, weakening returns, etc. to make changes if/when necessary. So, while everyone hopes to win the match (beat the benchmarks), there is some comfort, as Isner had in this match, of holding serve.

I was meeting with a client recently and she asked if there was a listing of wealth management best practices; something to review and use as a tool to enhance her efficiency in managing and thinking about her wealth.  The more I thought about her request I realized that this could be a useful idea for my wealth creating readers.  So, Jodi, this one’s for you…and everyone else too. 

1. Have a “Plan B.”  Significant market changes can create scenarios where your best laid plans no longer work.  Are you ready to deal with that potential?  Stress testing your estate plan and other strategies using contingency planning is critical. 
2. Have a copy of your financial plan where you can find it.  It should include the names and contact information of your key advisors and professionals.
3. Review your cash flow and net worth statements at least annually.  Look for trends, concentrations, liquidity levels, lifestyle costs.
4. Schedule time for a complete review of your estate plan and insurance coverage at least every three years.
5. Review your financial goals every two years. Are they still relevant? Have you accomplished them already? Do you need some new ones?  What do you want your life story to be in the coming months/years?

For the full list of 15 in greater detail, subscribe to the blog, shoot me an email (info@highlandcm.com) and I’ll send you the 15 secrets.  For those of you already subscribing, let me know and I’ll send the list to you as well.  Just our little way of giving back.

Just for fun, let’s recap the stock market this year:  fantastic start, up almost 10% through the end of April; four days of losses last week primarily caused by the turmoil in Greece, growing concerns in the Euro area, and fears of tightening economic markets in China; the now infamous trading glitch and the associated historical price swing; and then yesterday’s surprise European Union rescue package valued at almost $1 Trillion that helped push equities higher to the tune of 3 – 7% in most developed countries.

Summation:  Basically your investments are back to even for the year.  Isn’t it easy to get complacent in your investment approach and then suddenly get reminded how quickly things can change.  You definitely don’t want to be figuring out investment process and strategy during times of high volatility and market stress. 

While some experts have suggested that diversification is “dead”, we believe diversification is back and represents one of the key themes we are focused on in 2010.  It was proven in 2008 when we were facing economic collapse, it was proven in 2009 when the financial markets rose from the ashes, and, we believe it will again be the case this year.  It is simply what preserves wealth and provides the best opportunity for increasing portfolio values during extremely uncertain times…like now.

Several of Highland’s other investment themes that are also relevant at this stage are: 

1. Quality is King: Although not as apparent during the first quarter, rising volatility has pushed investors toward quality investments.  For example, the purchase of U.S. Treasury securities that has in part been prompted by concerns about the stability of the Euro. 
2. Where’s the Yield: Yields are low due to this flight to safety, requiring greater diligence to locate reasonable quality income streams, especially with money market rates hovering near zero.  High dividend paying stocks, corporate bonds, and emerging market debt securities are reasonable considerations in this environment. 
3. Limited Visibility: Market movement is based on only the very latest data releases—think last Thursday—and highlights the need to be nimble.  Volatility is peaking and suggests a focus on proven process in investment selection and timing.
4. Developed Markets Owe: The potential for contagion in Europe and spill-over effects on the rest of the world is the reason we have reduced our exposure to Euro denominated debt and equity exposure during the past quarter as this crisis was brewing.  Most of our portfolios have less than 10% total weighting in Euro-denominated investments. 

What worries you about your investments during the second half of the year?