Stay the Course Amid Uncertain Times

So much uncertainty being felt in the U.S. and around the globe surrounding a number of different issues, but especially right now with the spread of COVID-19. This is first and foremost upsetting from a human perspective, but then its exacerbated when we watch how the financial markets respond and see our retirement accounts lose so much ground.

At Maxima Wealth Management, it is a fundamental principle that markets are developed to contend with uncertainty, reacting in real-time as it sorts out and responds to all available information. Believe it or not, the recent declines actually demonstrate a functioning market.

While the markets are reacting to all new information as it continues to become available it is also pricing in possible unknowns. During increased uncertainty the risk associated is also heightened. This leads to an increase in returns that investors demand to assume that risk, which drives prices down.

No one can tell you exactly when the markets will turn around or by how much. We do know based on three similar historical events (SARS, Ebola, H1N1) strong evidence shows that markets rebounded quickly and decisively.1

As illustrated in the video link by Dimensional Fund Advisors below, what’s important is “Tuning Out the Noise” and don’t lose sight of your long-term investment plan. This is a time you may recognize the value of your financial advisor.


A trusted financial advisor will work with you to establish your personal investment plan that incorporates your personal risk tolerance and time horizon. Implementing this will create a portfolio allocated in a manner that is comfortable for you, with the understanding that uncertainty is a part of investing and the need to stay the course may ultimately lead to a more pleasant and beneficial investment experience.

At Maxima Wealth Management we assist our clients in developing a plan that meets their individual needs, we offer a structured, unemotional and highly diversified investment approach addressing risk management and helping you stay the course.

To learn more about how we can help you, contact us today for a consultation!


Identifying the Right Investment Strategy Is Personal

Believe it or not there are a number of different investment strategies out there not to mention all the different opinions that go along with each of those strategies. It’s not surprising that it can cause people so much anxiety to the point of just giving up and relying on the trusty “pin the tail on the donkey” strategy.

At the time you are ready to invest, be it in your 401k plan or your own mutual fund account, it’s important to identify the best strategy for your personal situation. Don’t be concerned with how your neighbor or co-worker invests.

Before identifying the best strategy for you, there are a number of questions to answer which will guide you in meeting your goals and objectives while being in line with your risk tolerance and time horizon. Keeping this in mind, the following are some possible investment strategies that may fit your personal situation.


  • Analysts believe they can identify industries/stocks that are mispriced in order to achieve a return in excess of the market
  • Rely on analytical research, forecasts, and the manager’s own judgment and experience in making investment decisions on what to buy, hold and sell
  • Market timing – strategy of making buy/sell decisions by attempting to predict future price movements; usually the focus is on timing the overall market
  • Exploit market inefficiencies by purchasing securities that are undervalued or by short selling securities that are overvalued
  • Usually not concerned with long-term investing
  • Watch the market every day


  • Goal is to replicate the return earned by a part of the market
  • No particular management style will consistently outperform the market averages
  • Constructs portfolio that mirrors a market index
  • Low-cost, minimal turnover
  • Tend to be more tax efficient
  • Normally long-term timeframe
  • Don’t want to watch the market everyday

Buy and Hold

  • Can be used with any investment style
  • Low-cost, minimal turnover
  • Tend to be more tax efficient
  • Goal is to buy when price is low and watch it grow


  • Utilized in passive investing
  • Portfolio constructed to mirror the investments within a particular index (i.e. S&P 500)
  • Low-cost, minimal turnover
  • Tend to be more tax efficient


  • Identify stocks of companies whose earnings are growing faster than most other companies and expected to continue – earnings momentum
  • Tend to buy when at the high-end of their 52-week price range
  • Have a high price to earnings (P/E) ratio
  • Usually low to zero dividend payout


  • Identify stocks of companies whose price is low relative to the company’s earnings or book value
  • Looking for a bargain, currently operating at a loss (no P/E ratio)
  • Tend to buy when at the low-end of their 52-week price range
  • Limited info requires a review of company’s financial statement – look for large cash surplus

Market Capitalization

  • Selection of stocks based on the size of a company
  • Small cap market cap = $300 million to $2 billion; generally higher return, more volatility than large cap
  • Mid cap market cap = $2 billion to $10 billion
  • Large cap market cap = over $10 billion; generally, more stable, possible dividend


  • Basically, taking the position OPPOSITE that of other managers or general market beliefs
  • Buy when all are selling and sell when everyone is buying


  • Focused on generating portfolio income
  • Usually more heavily weighted with debt securities (bonds)

Capital Appreciation

  • Looking for opportunities for appreciation
  • May involve different alternative investments (i.e. options, futures, IPOs, day trading)


  • Recognition of two kinds of risk: systematic and unsystematic
  • Systematic (external/non-diversifiable): factors that affect all businesses, i.e. war, global security threats, inflation
  • Unsystematic (internal/diversifiable): factors unique to specific industry or company, i.e. labor union strikes, lawsuits, product failure
  • Goal is to reduce risk, limit volatility, and improve portfolio performance

As you can see most are pretty straight forward, but some may require more explanation. It’s also important to determine which strategy or strategies match you and your goals/objectives. And, remember your investment strategy is not necessarily concrete and may need to change as your risk tolerance and time horizon changes.

Given the possible complex issues that can arise in this determination, it might be best for you to meet with a financial advisor. A financial advisor can assist you in establishing the best strategy for your situation.

If you need a financial advisor or know someone who would benefit from one, please send them my contact information along with this blog.

Cybersecurity: Tips to Keep Your Information Safe

Are we in the midst of a data breach epidemic?

Cyberattacks continue to grow in damage and complexity. The latest annual study of the problem from Javelin Strategy & Research, a leading financial analytics research firm, says that 14.4 million people across the nation were impacted by I.D. theft in 2018 – a drop from an all-time high in 2017.  However, “those victims shouldered a much heavier burden than those in recent years: 3.3 million bore some of the liability for fraud, nearly three times as many as in 2016, and victims’ out-of-pocket fraud costs more than doubled in two years to $1.7 billion in 2018.” 1

The main topics discussed in financial planning sessions are investments, insurance and planning for retirement. I would suggest that a commonly overlooked topic is cybersecurity. This includes steps taken to protect those financial planning components, as well as making sure personal information and records are kept secure. Recognizing the need for strong personal cybersecurity could possibly be the most important aspect of keeping your information private in today’s environment.   

Cybersecurity Tips

It may seem overwhelming, but there are some basic steps you can take to keep your information safe. Below are a few tips to get you started along with a number of articles you can read to broaden your knowledge.

  1. Keep software, operating system and browser up to date – security updates are continually being added with upgrades, installing immediately can prevent viruses
  2. Install an ad-blocker onto your browser – reduces the chances of clicking on an advertisement or email attachment with malware
  3. Establish multi-factor authentication to login to any website or application you use for financial transactions that contain personal data
  4. Run a reputable anti-virus product on your PC or laptop
  5. Avoid using public WiFi hotspots
  6. Don’t use public charging cords or USB ports to charge your device – power outlets are okay
  7. Don’t click on links in emails or texts you don’t recognize
  8. Don’t use the same or similar usernames and passwords on multiple websites or applications
  9. Use a password manager application –
  10. Only download applications from Google Play or the Apple’s App Store
  11. Limit the permissions you grant applications to ensure they are needed
  12. Limit how much information is shared on social media
  13. Use a current and reliable email provider – more likely to have updated security features
  14. Shred financial documents
  15. Consider a credit freeze –


Addition articles for your reading pleasure:

This is such a complex topic. The tips discussed above are not an all-inclusive list of considerations in helping your online presence and personal information stay secure but, they are a good start to help avoid some of the most common cybersecurity threats. It is important to stay informed and remain engaged with your financial advisor to ensure your personal data is properly secured.

If you need a financial advisor or know someone who would benefit from one, please send them my contact information along with this blog or contact me directly.

1 Consumers Increasingly Shoulder Burden of Sophisticated Fraud Schemes, According to 2019 Javelin Strategy & Research Study,

Behavioral Finance: Does Fear and Emotion Drive Financial Behavior?

Have you ever made a decision based on your emotions even though facts and statistics point you to a different choice? Maybe you offered to buy a house above the advertised price and higher than comparable home values because you believed you would miss out due to competition? Or maybe you have a fear of flying even though flying is far safer than driving? Perhaps you keep cash in a safe at home instead of a bank savings account, because you feel immediate access to your cash is more secure than the bank.

When establishing a personal investment plan, recognizing and understanding various financial theories can help develop the best plan for you. Rational based theories, such as the capital asset pricing model (CAPM) and the efficient market hypothesis (EMH), assume that people, for the most part, make decisions rationally and predictably when all information is available.

However, there is a belief that rational based theories do not address all situations. The behavior finance concept sets out to answer the additional conditions through the following eight key ideas. It is believed that these contribute to irrational financial decisions and impact the financial markets. I’m sure one or more of them are familiar to you.

  1. Anchoring

Anchoring is based on the idea that our decisions are attached or “anchored” to some reference point, regardless of it being logically relevant to that decision.

Behavioral finance example:

A good example is the rule of thumb for buying an engagement ring equal to two months of salary. This has become the “standard” and it was established by the diamond industry and not based on what one can afford or not.

Emotion leads us to believe that love is valuable and therefore “worth” more. Opening a box with an engagement ring that knocks your socks off causes the fiancé to think “He loves me therefore he spent a large amount of money”.

Behavioral finance example:

Another example is investing in a stock whose price recently dropped and believing the anchoring thoughts: “buy low, sell high”, “now’s the time to invest, it will come back up”, when actually the price drop had to do with a recent change in the company’s fundamentals (i.e. loss of a large contract) and could mean that the changes will cause a lower company value.

  1. Mental Accounting

This is the concept that separating accounts based on different goals (i.e. vacations, education) will have a different and more positive effect on spending decisions.

Behavioral finance example:

This can be illustrated better with the following example: having a special “money jar” or fund set aside for a vacation or a new home, while still carrying substantial credit card debt. When actually eliminating the credit card debt will help increase savings for the vacation or new home.

Emotion leads us to believe that the separate accounts will garner success in meeting our goals and working toward something giving a sense of responsibility and self-discipline.

  1. Confirmation and Hindsight Biases

This idea is based on the saying “seeing is believing”. However, this may not always be the case, perhaps our minds allow us to see what we want to see?

Behavioral finance example:

Have you ever been formally introduced to someone after learning another’s opinion of that person and then recognized that your first impression was impacted by a preconceived notion or confirmed? The hindsight bias can be shown by the more recent example in the real estate market in 2008. For those in Arizona and many other markets around the country homeowners experienced home values dropping significantly forcing a record number of foreclosures. Many people now believe it was obvious and they should have seen it coming, however, was it?

Emotion leads us to believe that certain events were predictable or completely obvious at the onset.  We do this in an effort to find order by creating an explanation with links between cause and effect. The problem with this could lead us to erroneous links and incorrect oversimplifications.

  1. Gambler’s Fallacy

The Gambler’s Fallacy is when one erroneously believes that because an event, or series of events, just occurred that the chances for a certain random event to follow is reduced.

Behavioral finance example:

This line of thinking is incorrect as illustrated by a series of 20 coin flips. A person might predict that the next coin flip is more likely to land with the “tails” side up. Understanding probability will tell you that each coin flip is an independent event and has no bearing on future flips. Or, as illustrated with the rise and fall of a stock price, the notion to invest in a stock that has gone down 20 days in a row because the next day it just has to go up regardless of any real fundamental reasoning for the recent price decline.

Emotion leads us to believe we have some control for the next outcome and that it’s going to go our way next.

  1. Herd Behavior

This is the propensity for individuals to follow the actions of a larger group whether rational or irrational. Individually, however, most people would not necessarily make the same choice.

Behavioral finance example:

There are a couple reasons for this behavior. We as people want to be accepted by a group and therefore we are prone to follow the group even though we may make a different decision as an individual. Another, more likely, reason is the common basis that it’s unlikely that such a large group could be wrong especially in situations in which an individual has very little experience. This was seen more recently with the “dotcom” investments. At the time fundamentals were not available to support the large investments; however, because venture capitalists and private investors believed in them as good investments, then they must be, right?

Emotion leads us to believe that the masses are right and since it’s different from what I think, I must be wrong. These beliefs come from self-doubt and insecurity.

  1. Overconfidence

Confidence versus overconfidence. Confidence implies realistically trusting in someone or something, while overconfidence usually suggests an overly optimistic judgement of one’s knowledge or control over a situation. Another way to explain it is by referring to my personal example of bowling. Yes, I’m talking about the sport. First, I should explain that I actually don’t really enjoy the sport, typically the balls are too heavy. But, every time I play I feel that I’m getting better and after a couple rounds I actually believe I could win. This is an example of my unwarranted confidence, i.e. overconfidence.

Behavioral finance example:

Most recently we can look at the 2008 Housing Crisis. There were many variables that caused it; however, the above average increase in home values can be attributed partly to the overconfidence of real estate investors who didn’t normally refer to themselves as real estate investors. Values in their homes were increasing and opportunities to capitalize on that were marketed to them. The value increase had nothing to do with their real estate knowledge; however, it made them feel confident in their ability to invest in another and make money.

Emotion leads us to believe that ultimately, we have control of the outcome. Perhaps it comes from our belief that we are entitled to the positive result.

  1. Overreaction and the Availability Bias

Emotions in the stock market help explain overreaction when new information is presented. Based on the availability bias, people tend to weigh their decisions heavily on more recent information, making their new opinion biased toward that latest news. Perhaps you have experienced this when driving by a car accident? Immediately you slow down and drive with more attention. You may even continue to do so the next couple of times you drive, but then over time you revert back to your normal driving behavior.

Behavioral finance example:

Perhaps we are experiencing an example in today’s market? As a whole, the U.S. economy is performing well and the stock market is at an all-time high. Given this positive news, perhaps more people are investing or more dollars are being invested in the market leading to more new highs.

Emotion leads us to believe that new current information is better and more accurate and we must pay more attention to it than the previous information available. This drives us to action.

  1. Prospect Theory

Prospect Theory believes that people value gains more positively than they value losses negatively, and therefore make decisions based on these perceptions.

Behavioral finance example:

To clarify, winning $50 is better than winning $100 and then losing $50. The end result is the same – $50; however, losses have more emotional impact than an equivalent amount of gain. This theory can also be used to explain the occurrence of the disposition effect. The disposition effect is when an investor holds on to a losing stock too long or selling a winning stock before necessary. Logically it makes more sense to hold on to the winning stocks in hopes of realizing more gains and to liquidate the losing stocks to avoid further losses.

Emotion leads us to believe that losing, regardless of the amount, relative to gains is bad. Additionally, we believe we deserve awards and positive results.


What does this all mean relative to you and your investment risk management? We are emotional creatures and emotional investors, and consciously or subconsciously, this causes our behavior to focus on how winning or losing will make us feel.

With these behavior finance concepts illustrated above, it is no surprise that some investors question their confidence in the financial system and aren’t sure what to do and who to trust. At Maxima Wealth Management we assist our clients in developing a plan that meets their individual needs, we offer a structured, unemotional and highly diversified investment approach addressing risk management.

To learn more about how we can help you, contact us today for a consultation!

Managing Risk – Managing and Capitalizing on One’s Exposure to Risk Factors

Everyday life is the perfect illustration that risk is involved in everything we know and managing it is an action we address with everything we do. In our daily lives we may wonder about things such as: Should I take the umbrella today? Should we drive city streets or freeway to get to the doctor’s appointment? Which water heater should we buy?

Risk and Investment Decisions

Of course, risk is also involved with investments. But as with the examples above, there are steps we can take to manage and capitalize on the risk with which we are comfortable.

Three steps in the overall process of managing risk.

  1. The process of understanding the risk. This is done by gathering information or data to help make an informed decision. With investments we start this process by understanding our personal risk tolerance and time horizon.
  2. Understanding that there is a certain reward with each risk and assume the level of risk consistent with one’s comfort level as discussed in 5 Investment Risks.
  3. Respect history and the research/statistics available when taking action. This step is the act of managing. With the knowledge in the first two steps, one can decide which risks are appropriate to assume and how much one should assume.

Recognize Risk Factors

At Maxima Wealth Management we recognize the following principles that influence our structured approach to managing risk based on compensated risk factors:

  • Markets work—Intense competition drives the market to near-instant efficiency. Securities prices are fair and reflect the best estimate of the company’s actual value. Efforts to identify undervalued stocks or markets are not rewarded consistently.
  • Effective diversification is key—It reduces the impact of individual securities and enables investors to scientifically employ the risk factors that offer higher expected returns.
  • Risk and return are related—Only non-diversifiable risk is systematically rewarded over time. So, differences in the average returns of portfolios are due to differences in average risk. Multifactor investing brings a systematic approach to harnessing these risks to deliver above-market performance over time.
  • Portfolio structure explains performance—Asset allocation, not stock picking or market timing, accounts for most of the performance in a diversified investment strategy.

Research shows that most of the variation in returns among equity portfolios can be explained by the portfolios’ relative exposure to three compensated risk factors:

  • Market Risk—Stocks have higher expected returns than fixed income securities
  • Size Risk—Small cap stocks have higher expected returns than large cap stocks
  • Value/Growth Risk—Lower-priced “value” stocks have higher expected returns than higher-priced “growth” stocks

Structuring a portfolio around compensated risk factors can change priorities in the investment process. The focus shifts from chasing returns (through stock picking or market timing) to diversification across multiple asset classes in a portfolio.

Understand Risk

The key to managing risk is first to clearly understand what risk is, second recognize with every risk there is some level of reward, and third acting on what history has shown and what level of risk/reward you are willing to assume. It is important to stay focused on your investment goals and objectives along with your risk tolerance and time horizon.

Opportunity in the market is sometimes disguised as volatility. This can increase investor emotions and affect decision making. My next blog will address risk management from the behavioral finance perspective.

5 Investment Risks: Is Risk a Necessary Factor of Return?

Those of you who live in Arizona know that October is usually the month that the temperatures start decreasing and people are excited to be outside. I am one of those people. I live in Arizona for the opportunity to hike, bike and just enjoy the beautiful southwest outdoors.

Over the years, I have come to recognize the benefits, but also the hazards, associated with the different types of outdoor activities — and of simply being outdoors. Some of those benefits include: healthy workout, vitamin D, access to beautiful views.

In turn, some hazards associated with those benefits include: spraining an ankle while hiking, sunburn, running out of water. Knowing my desired outcome I am able to gauge my capacity for risk, and plan accordingly.

Risk and investment returns

This is also true with investments. One can get higher returns if they are willing to assume more risk and equally true, the lower their risk, the less they are expected to receive in returns. Historical data shows us that investors are compensated in proportion to the risk they take.

This research identifies five risk factors that explain most of the expected returns associated with different asset classes.

These asset classes are:

I. Stocks

  • Large Capitalization Companies: Growth/Blend/Value
  • Medium Capitalization Companies: Growth/Blend/Value
  • Small Capitalization Companies: Growth/Blend/Value

To differentiate and define risk within each stock asset class below are three factors:

        A. Market Risk —generally, stocks have higher expected returns than fixed income securities

       B. Size Risk—small capitalization stocks have higher expected returns than large company stocks

       C. Value/Growth Risk—lower-priced “value” stocks have higher expected returns than higher-priced “growth” stocks

II. Bonds

  • Long-Term (generally greater than 10 years): High to Low Credit Quality
  • Intermediate-Term (generally 4 to 10 years): High to Low Credit Quality
  • Short-Term (generally 1 to 3 years): High to Low Credit Quality

And then below reflect compensated risk in the bond market:

         A. Maturity Risk—longer-term bonds are riskier than shorter-term instruments

         B. Credit Risk—instruments of lower credit quality are riskier than instruments of higher credit quality

Assessing risk when making investment decisions

Just like we recognize the benefits and hazards associated with the outdoor activities we enjoy (risk/reward concept), we must also go through a similar process with investments. This risk/return concept is one of the essential components when making investment decisions and assessing a portfolio. My next blog, Managing Risk, will address the idea of managing and capitalizing on one’s exposure to risk factors.

2 Key Questions to Answer: Understanding Your Risk Tolerance and Time Horizon

With my birthday on the horizon I’ve been thinking about what I’ve done throughout my life and what I’d still like to do. It’s interesting to look at those two lists and compare. Perhaps you’ve done this exercise. When reviewing these lists, I see a clear change in my personal risk tolerance over the years.

Risk assessment is something we all do every day of our lives. And regarding our investments, it’s definitely something we should be doing and reviewing at least annually. It is important to know that with each risk there is a certain return associated. Identifying early which risks one is willing to take, given the related return, can reduce a great deal of heartache in the future. There are numerous questionnaires available to help identify your risk profile. I use two such questionnaires which can be found at

When assessing risk and identifying your risk tolerance there are few key questions to ask and answer.

1. Can you handle short-term losses?

The answer to this question is going to be different for everyone, and may even be different for you, depending on your individual goals. An investment policy statement (IPS) can help you maneuver through the ups and downs of the market, as well as address matters such as long-term goals and desired returns. I assist each of my clients in establishing an IPS after we define goals and objectives and clarify their current financial situation.

2. What fundamental factors can influence your risk tolerance?

It probably wouldn’t surprise you to learn that age is an important consideration; however, the second one might be a foreign concept – time horizon.

Risk and time
As we age, the amount of time we have to make up our losses is reduced. These losses could be in the way of money, time or even broken bones. This is why as I compared my two lists I wrote about earlier I recognize my desire to skydive when I was younger has now turned into specifying my desire to indoor skydive. So, it makes sense if one might gradually reduce the amount of risk in their investment portfolio over time just like one might adjust the different recreational activities as they age.

But what exactly is meant by time horizon. Basically, it is your timeline to the specific goal in which you are investing, such as retirement. This timeline can influence your risk tolerance. Identifying the desired time horizon is very important when it comes to choosing investments and your overall asset allocation for a particular portfolio.

With longer-term goals we can often afford to be more aggressive than with shorter-term goals. Take my skydive example above. If I were to skydive now and break my leg on the landing my recovery would likely be longer because of my age, whereas if it had happened when I was a young adult my bones and body could recover quickly.

“The torment of precautions often exceeds the dangers to be avoided.” – Napoleon Bonaparte

There is a relationship between risk and return. Risk is a necessary factor of return. Investors need to recognize this risk/return trade-off. Understanding this will lead one to recognize the importance for investors to manage risk even more than simply trying to reduce it. And this begins with understanding your risk tolerance and time horizon. Check in for my next blog discussing the risk/reward concept.