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Managing Fluctuation

Sigma Investment Counselors

April 22, 2015

Fluctuation is the norm.  Markets fluctuate.  Rainfall fluctuates.  Tax collections fluctuate.  Fluctuation is real but can be managed if recognized and dealt with in a disciplined manner.

It is obvious that discipline is the problem.  Many public sector pension funds are still distributing so called “13th checks”, reflecting the manager’s willingness to distribute the results of positive periods without giving enough thought to the potential for below target periods.  Wasn’t Detroit enough of an object lesson?

Now we see California struggling with a drought.  Droughts are not new news.  Why aren’t mechanisms in place to not over build during periods of strong water supply?

Tax collections also fluctuate, primarily with the economy.  Never-the-less, the political class rushes to spend any increases in tax revenues, even those based on economic booms, without any regard for the problems likely to materialize as the economy slows.

Unfortunately, individuals are largely powerless regarding these larger issues.  However, investors and their advisors are well positioned to develop investment objectives that recognize that markets fluctuate.  By establishing a strategy based on average returns, over a long period, investors can, to a considerable degree, pursue long term objectives, at a steady pace, despite market fluctuations.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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