Is Your BeachBody Ready for Summer?

Meme stocks, Real-Estate, Initial Public Offering (IPOs), Special Purpose Acquisition Company (SPACs), Bitcoin, and Precious Metals – what do all of these share in common? Each is an example of an investment or asset currently receiving lots of “buzz” and client curiosity. While we do not typically follow these items intimately and prefer the diversification and liquidity of traditional mutual funds, bonds, and ETFs, we do not necessarily have anything against a client owning other assets when the exposure is properly managed. We do encourage anyone exploring ideas that are receiving intense attention from the media or “peers” to proceed with caution as the waters are often dangerous. If we were lifeguards at the beach, we would hang the yellow flag on the chair, “proceed with caution.”

Pause and take a deep breath. Do not act on emotion or “FOMO” (Fear of Missing Out). It is important to first consider reasons to own any investment. Ask yourself, does the investment help me meet my financial goals? Am I fully aware of the risks associated with owning a concentrated position in one stock or sector? Am I being compensated adequately for the risks and/or relative illiquidity I will assume? Trying to understand why one feels an impulse to buy something before doing so, is most important. “Story stocks” or investments “everyone is buying”, should require a keen understanding of the hype before investing.

Recently a client shared their interest in participating in the IPO of Beachbody fitness stock. This individual has worked with the company as a private coach for 10+ years, believes in the company’s future growth potential, and wanted to participate as the stock went public. As we discussed with them their intent, we were encouraged by their understanding of the company and the investment risks. And they already thoughtfully considered how the stock fit into their investment portfolio and LIVING LIFE financial plan.

Whatever the investment opportunity, we advise clients to keep sight of the big picture “pie”. Pre-define guardrails – how much of my net worth do I want exposed to one asset – are critical. For stocks, we typically advise that a single company stock not be more than 5% of your net worth. For items more speculative/uncertain and less linked to economic or business fundamentals (like cryptocurrency, precious metals, or a volatile “meme stock”), limiting position exposure to an amount you’d be comfortable losing (most or all of) is wise. Adding guardrails around certain investments can further assist in the removal of emotion from financial decisions. For our Beachbody client, the IPO was more about desiring to participate in what they believe will be ongoing long-term growth of the company; not viewed as a “get rich quick” idea. This thoughtful approach led to making a right-sized investment for their overall big picture; it will not materially alter their lives should the investment not be rewarded by the market.

Famed investor Warren Buffet is often cited for his quote, “be greedy when others are fearful, and fearful when others are greedy.” Our own “famed” investor Bill Henderly often shares his own version worth repeating, “when the parade is going down the street, extra caution is warranted.” Let’s not get caught in the fanfare of the day, and do your best to be level headed when evaluating investment opportunities. This can be applied to most any investment or asset class – from publicly traded equities to more illiquid opportunities like physical real estate and/or that second home. We will all do well to take the long view, and remove emotion from the investment equation. Think critically before pulling the trigger and buying that next “investment du jour” (even if it has a creative ticker like BODY); doing so is good practice for your financial fitness.

Author: Jordan Acer, CFP & Steve Henderly, CFA | Nvest Wealth Strategies, Inc – June 30, 2021
Posted in Personal Finance, Quarterly Newsletters.