Investment Management


Investment Management

For many, investments are the first thing they think of when they think of financial planning. While we assign great value to Our Planning Process, there is no question that the investment of your nest egg is a critical component of your financial plan. Where and how to invest is a critical decision when faced with making your money last through 30-plus years of retirement in which the cost of living is likely to rise two-and-a-half times. While each portfolio is designed for the individual client based on their specific goals, there are a few truths that would apply to any investing we do on behalf of clients.

Asset Allocation: Much of your overall return is determined by the asset classes you choose to own. Different investments have different risk and return characteristics, and understanding how each fits into your portfolio is the starting point for your investments. Since no single asset class or sector outperforms consistently, it is important to own multiple asset classes and monitor the weightings so that your portfolio maintains the risk and return characteristics appropriate for your goals. While asset allocation does not guarantee against loss, it is a method used to manage risk.

Diversification: You never want too many of your eggs in one basket. Once you have determined the asset allocation, you want to make sure that you diversify inside each of those asset classes. While the eye-popping returns of the latest tech stock might seem attractive, concentrated company risk can be exceedingly dangerous. Diversification cannot eliminate total market risk, but it can help hedge the risk that the under performance of one company, one industry, or one country is not responsible for the failure of your investment strategy.

Tax Management: With current tax rates on income, capital gains, and dividends, minimizing the drag of taxation is an important part of investment management. We endeavor to be as tax efficient as possible on accounts that are subject to taxation. We do so by locating less tax efficient assets in tax deferred accounts, and by actively harvesting tax losses in taxable accounts when the opportunity exists. When possible, we work to build a portfolio of investment accounts with different tax treatment in retirement. This diversity of tax treatment may allow you to draw less on your portfolio to net the amount of income you desire after taxes. Paying attention to these tax factors can make a meaningful difference in your financial independence.

Managing Behavior: Perhaps the most important work your advisor will do for you is to coach you through moments where you are tempted to give up on your portfolio. Study after study shows that investors consistently under perform their own investments because they panic out of market declines and clamor in at market highs. The last 20 years has given investors plenty of opportunity to panic. The Internet bubble of Y2K, September 11th, The Financial Crisis of 08-09, and the debt ceiling debacle of 2011 are some ready examples. Those who had a plan, stuck to their portfolio and invested through those downturns have done well in spite of these market events(1). We view it as our solemn duty to remind clients that market-timing is futile and that market downdrafts cannot be predicted. However, with a solid strategy, an emergency fund, and the knowledge that “this too shall pass”, we can confidently guide clients through downturns without falling into the behavior trap that can capture so many investors.

Our investment committee spends a lot of time on technical data and due diligence for the investments and managers we deploy. If you are particularly interested in alpha, beta, correlation coefficients, downside capture, or turnover ratios, we can geek out with the best of them. We welcome the discussion, but have found that the core principles outlined above are the primary drivers of investment success. Our adherence to the tried and true principles combined with our independence which allows us access to the universe of suitable investments, gives us confidence to build an appropriate portfolio for each of our clients.


Source: (1) Fidelity Investments Study 2017.
Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.