A 3-Part Fundamental Investment Strategy Anyone Can Follow

Get Started

What Our Clients Are Saying

Tumwater has been a great resource for financial planning for my future and eventually my retirement. I’ve worked with Ben to find the right balance of investments that suit my long-term saving goals. I also have appreciated Ben’s help with other savings goals, whether it’s regarding an emergency savings fund, or saving for a specific purchase. He is always willing to answer my questions and explain the rationale behind investment moves. He also reviewed my 401(k) plan which was very helpful!

Brooke W, 6/16/2021 

Read Disclosure here.

My first contact with Ben occurred when he was the Financial Advisor for my former employer… The first one-on-one meeting we held to discuss my financial future
was a total wakeup call (Yes, there were tears). He laid out an honest appraisal of my current financial situation and what I needed to do differently to move positively
toward a reasonably comfortable retirement. I took his sound advice to heart. Last year, I was unexpectedly laid off and that led to my decision to retire at the age of 70. I reached out to Ben and he immediately set up a time to talk about the best options for my 401K. A plan to roll the funds into an IRA was set in place and implemented by Ben and his co worker, Jackson. I am confident that Ben has my best interest at heart.
Communication is never an issue—I always know I will receive honest, appropriate guidance.

Patricia A, 6/17/2021 

Read Disclosure here.

[I] sleep well at night knowing Ben and his team are taking care of our investments.

Kealy B, 6/16/2021 

Read Disclosure here.

They have helped me feel safe with my financial future and provided me a valuable resource to come to with any questions about financial decisions and planning.

Jack C, 6/17/2021 

Read Disclosure here.

Tumwater has helped my family think about our financial future– but in a uniquely holistic way.
I really value being able to ask for Ben’s advice on any financial topic, be it immediately related to our investment planning or not.
Ben sees and understands how the big picture impacts the tactical decisions he helps you make.

Matthew M, 6/17/2021 
Read Disclosure here.

Tumwater provides a thorough explanation of my assets and how best to meet my needs.

Ruth M, 6/17/2021 

Read Disclosure here.

Tumwater has given me a place to have my money managed, to allow the money to work for us, thereby increasing in value every day. Tumwater invests the money into funds that grow, watches those funds to stay [diversified]. You hire a Financial Advisor to focus on increasing the value of your saved money. This allows you to focus on your own profession to succeed. The money invested then grows and is there for life’s big bills, college for youngsters, retirement, etc.

Paul M, 6/17/2021 

Read Disclosure here.

Tumwater has helped to make us feel financially secure over the long run because of the sensible investment strategies Ben has employed for us.

Cherie and Jim C, 6/17/2021

Read Disclosure here.

I find the entire staff consistently responsive. This is significant for me. Once I recognize I need information, it is helpful to receive that information quickly.

Jenni Y, 6/17/2021 

Read Disclosure here.

We have 100% confidence that you know what you are doing which is so much more that most professionals who call themselves a financial advisor.

Kealy B, 6/16/2021 

Read Disclosure here.

I have complete trust in Tumwater, they alleviate a huge burden of stress in my life.

Jenni Y, 6/17/2021 

Read Disclosure here.

The service provided by Tumwater has met all of my needs.

Jack C, 6/17/2021 

Read Disclosure here.

Through Ben’s guidance for over 10 years he has us brought to a comfortable financial position heading into retirement.

Nic C, 6/16/2021 

Read Disclosure here.

You have been a valuable resource for others in our family. You have gained our trust and respect and this is very important at our stage in life!

Cherie and Jim C, 6/17/2021 

Read Disclosure here.

Tumwater allows us to enjoy our retirement.

Paul M, 6/17/2021 

Read Disclosure here.

A 3-Part Fundamental Investment Strategy Anyone Can Follow

Posted on:
November 18, 2021
Time to read:
6 minutes

“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.” – Jim Rohn

Getting Back to Basics

As head coach of the Green Bay Packers, Vince Lombardi led his team to victory in the first Super Bowl. The first thing he did the following year was huddle his team around him, hold up a football and say, “Gentleman, this is a football.” He prepared his team for the coming season by focusing on the basic fundamentals of football: blocking, tackling and running.

And it worked. They won the second Super Bowl too.

Lombardi’s team had just proven they were the best football team in the world. But his focus the next year was the basics too — the ABCs of football.

As investors, we need to regularly bring our focus back to the fundamentals too. We’ve talked a lot about patience and discipline in investing, but there are also 3 fundamental investing tactics for building and managing an intelligent portfolio over time.

1. Asset Allocation

This is just a Wall Street way of describing the mix of stocks, bonds, cash, and real estate you own. Your asset allocation decision is responsible for the majority of the returns you get (or don’t get) over your lifetime as an investor.

In some ways, this is obvious – historically, stocks have produced 10-12% annual returns while bonds have earned 3.5-5.5% returns, cash even less. The more of your portfolio you invest in stocks and the less you have in bonds, the higher the returns you can expect over the long term. This is why, for long-term investors, we want to see a portfolio mostly made up of stocks.

Where it gets complicated is in balancing the different goals people have for different chunks of their money. Stocks may generate higher returns over the long term but for shorter time frames they are unreliable. The stock market could be much higher a year from now…or it could be much lower.

The way we navigate that is to break the money into two buckets.

Money Bucket #1

The first bucket is the money you will likely need to spend in the next 5-10 years. For that money, stocks aren’t appropriate. For short time frames, we really can’t count on stock trading to give us good returns. 

There are lots of five-year time frames where the stock market lost ground. There are even (although fewer) ten-year time frames where the stock market went backward.

So, for the money we know you’ll need to spend within 5-10 years, our first goal is not growth potential, it’s stability. We need to have at least the same number of dollars, when the time comes to spend it, as we have now. If we can get a bit of growth on those dollars in the meantime, great. But not at the risk of it going backward by the time we need it.

Money Bucket #2

The second bucket is the money you’re pretty sure you won’t need to spend in the next 10 years. For that money, the biggest risk we’re trying to overcome is inflation, not the short term gyrations of the stock market. Each year we’re able to buy less and less with each dollar we have.

Since 1980, inflation has averaged 3% per year. At that rate, inflation will eat away more than 26% of the purchasing power of each dollar we have every ten years. What that means is, we need to get at least a 3% return each year just so our dollars will be able to buy the same amount of stuff they can buy today.

Historically, stocks and real estate have provided the best performing investment opportunities and, therefore, have done the best job at outpacing inflation. That’s why we like to see any money we know you won’t need to spend in the next 10 years invested in a diversified portfolio of stocks and/or real estate.

2. Diversification

Because we can’t know for sure if any one investment decision will be the best, we want to diversify. Putting all our money in just one investment puts our entire financial life at risk if that one investment fails. The more investments we have, the more we eliminate the risk that any one of them could derail our financial life.

Imagine if 80 years ago we owned stock in the ten best typewriter companies in the world. How much protection did that “diversification” give us when typewriters went the way of the buggy whip?

diversifying your portfolio

True diversification means no one company, sector, industry, country, or idea can blow us up. True diversification means owning thousands of companies all around the world in all kinds of sectors and industries.

It has nothing to do with the number of mutual funds you own.

I’ve seen portfolios with a single fund that were thoroughly diversified and I’ve seen portfolios with 15 funds that all invested in the same part of the stock market. To know if your fund portfolio is diversified, you have to look “through” the funds to see what actual stocks and/or bonds it holds. That way you can see what gaps and redundancies actually exist in the portfolio.

3. Rebalancing

This tactic ensures that your portfolio maintains the asset allocation you set out originally – it doesn’t accidentally become more and more aggressive (or more and more conservative) over time. It also helps the portfolio stay diversified rather than becoming increasingly concentrated on whatever investment has done the best.

Think about rebalancing as a reset button for your investments. When you build your portfolio the right way, every investment is carefully chosen to work in harmony with every other investment. Each one has its own unique part to play in the overall portfolio.

Over time, investments that do the best gradually become a larger and larger piece of the portfolio. The longer this goes on, the less the portfolio resembles how you set it up to begin with. When we rebalance, we take the portfolio back to the original design.

But how do we know when to rebalance?

In much of the investment industry, rebalancing is thought of as a calendar to-do item – it’s January 1st? Must be time to rebalance! Rebalancing might also be done on a quarterly or monthly basis. I think rebalancing should happen only when things get out of balance.

As portfolio managers ourselves, each investment in each of our clients’ portfolios is tracked on a daily basis so we know when any get out of balance and can take action to put it right. 

The beauty of strict discipline in rebalancing is that it forces you to follow the age-old investing formula: buy low, sell high. When a fund drops more than everything else in the portfolio, it will drift out of balance and we’ll be prompted to buy more of it – buy low. When a fund outperforms everything else in the portfolio we’ll be prompted to sell some of it – sell high.

Repeated consistently over years and decades, the rebalancing discipline can enable investors to even outperform their own investments simply because they are buying more of the stock when the stock price is low and selling a bit of the stock when it’s price is high.

To start exploring asset allocation, diversification and rebalancing in more depth for your own portfolio, sign up for our Retirement Income Academy course and download a free copy of our eBook, “How to Retire with Confidence and Clarity”.


Tumwater Wealth Management is a registered investment adviser and may only conduct business in states where it is registered or exempt. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

Build a Retirement Income Plan that Gives You Confidence and Freedom

Sign up for our Retirement Income Planning Course.

Learn more