Financial Planning can be integrated and comprehensive, where all elements of your financial affairs (like retirement planning, investments, insurance and college funding) are brought together into a coordinated, cohesive plan. Or, it can be very specific, focusing just on a single issue of importance or concern to you. In either case, financial planning is a multi-step process that provides you with two important deliverables. First, an in-depth review of your current situation (either comprehensive or specific, depending on your planning objective) and secondly, a road map that provides clear direction on how to achieve your planning goal(s). It is important to remember that financial planning is a dynamic process, not a single, one-time event. The economy, your planning objectives and earned income can all change, necessitating a revisit of the road map.
- The asset allocation decision will be the most significant factor in determining your long-term investment performance. Asset allocation refers to the way you divide your investments between stocks, bonds and cash. We believe that there is a direct correlation between risk and return- i.e. investors receive a risk premium in the form of higher returns for choosing investments that carry greater risk.
- We believe that investing in stocks requires a time horizon of at least five years or longer. Investors who will need access to their funds within five years should not be in the stock market. As we experienced from 2000-2009, stocks are capable of delivering 0% returns for an entire decade.
- We do not believe in market timing, which is a strategy that seeks to move in and out of the market (bond or stock) in anticipation of either upward or downward market movements. Few (if any) investment professionals have, over a long period of time, demonstrated their ability to consistently add value beyond a buy and hold strategy. We believe in controlling risk through a prudent asset allocation strategy, not by attempting to time the market.
- We believe that there is a role for both active and passive investing strategies. To clarify, active management is an investment approach where fund managers choose securities based on research, judgment and financial analysis. Passive management is a buy-and-hold strategy that seeks to provide broad market exposure and typically tries to replicate the returns of a designated index (like the S&P 500). Passive investors make no attempt to exclude or include a stock in their portfolio based on criteria used by active managers. For many investors, we recommend a Core + Satellite investing model. Conventional wisdom holds that the purpose of core portfolio holdings has been to harness the long-term appreciation potential of traditional assets such as large-company stocks and high-quality bonds. The goal of asset allocation has been to strike a balance between these two low correlation asset classes that optimizes their risk-adjusted returns. However, following the economic crisis of 2008-early 2009, we believe that there are three key factors that need to be considered in constructing the core portion of investorsÃ portfolios. These factors are: historically high volatility, historically low interest rates, and renewed awareness of the potential for historical correlations to break down. In this environment, traditional holdings Ã± especially long-only stocks- may be too volatile for many investors, especially those nearing or in retirement. We believe that post-crisis core portfolios may benefit from some revisions to traditional asset allocation, and believe that hedged equity, global fixed income and risk-managed alternative investments may be more appropriate for many investors.
- We believe that fees and expenses have a very negative impact on our client’s wealth over a long period of time. For example, if two investors with $100,000 are able to earn an average of 9% per year over a 20-year time period, but one investor chooses higher cost investments that assess an extra 1% per year in fees, the investor with the higher costs will have $94,345 LESS at the end of the 20-year period. Expenses and fees must be carefully managed.