Design. Execute. Monitor.
Investment Management Services
One of the biggest decisions to be made during the financial planning process is whether one should perform the investment management themselves as a do-it-yourselfer or to hire an Outside Manager. Hiring an Outside Manager may cost you anywhere from .5% to over 1% of your portfolio balance every year. It can be worth the cost if you need help with the “Execute and Monitor” stage of the investment strategy of your financial plan.
Because of the cost, some people choose to perform investment management as a “do-it-yourselfer.” Many of these plans fail because of lack of time, experience, or temperament. Many a good portfolio designs go wasted after just a couple years of neglect, no rebalancing, changing client risk tolerance, life circumstances, and changing markets. It’s easy to end up with an inappropriate investment model.
Choosing an Outside Manager
You may want to consider an Outside Manager to manage your portfolio if any of these conditions apply:
- Are not comfortable with an investment account set-up, selling, buying and rebalancing a portfolio
- Don’t know how to effectively manage a withdraw strategy across a portfolio consisting of taxable, tax-deferred, and tax-free accounts
- Are approaching diminishing capacity, where it just isn’t feasible
- Don’t understand or are unhappy with your current Investment Management fee structure
- Want more meaningful quarterly reports providing insights on how you are doing with your Plan goals and objectives
If any of these apply to you, we are glad to help you find an advisory firm that can meet your needs.
Choosing DIY Investment Management
There are challenges and complexities if you are not comfortable with investment management as a do-it-yourselfer. Investment management can be very complex. Before you embark on that journey, please read about Doing Investment Management Yourself to understand the full complexities. Yes, we are here to help you with the Planning aspect, but implementation and execution responsibility will reside with you.
Choosing a Middle-Ground Solution
But there is a middle ground solution: The “Advice-Only” approach to financial planning an investment management. This is the approach that we implement. Your financial planning process with us is partly education on how to invest your money on your own. We design the portfolio. You manage it. We are here for on-going financial planning services, if you need it.
If we jointly determine that you can manage the portfolio yourself (as a do-it-yourselfer), we will coach you to implement your Plan and your portfolio. On-Going Financial Planning is available to help you with the execution of your Plan and rebalancing your portfolio on a regular basis.
Our Portfolio Design and Investment Management Philosophies
There Must be a Plan
One of our basic principles is being unbiased and independent thinkers for our clients. We are not “asset gatherers”. Therefore, we do not design a portfolio without a written Initial Financial Plan and appropriate Risk Tolerance analysis. We believe investing is a well-defined strategy to meet YOUR specific long-term goals and risk tolerance. An Initial Plan and On-Going Financial Planning provide the foundation and investment policy statement required to make sure we are designing a portfolio for your assets with your best interest at heart.
We build portfolios for long-term investors. All our portfolios have a few things in common:
- Non-commissionable products
- Diversified Portfolio
- Low cost mutual funds or Exchange Traded Funds (ETFs)
Investment Management Principles
Our goal is to design a portfolio so that you can manage it yourself, with On-Going Financial Planning:
Generally, our portfolio design is based on a globally diversified strategy involving a long-term, disciplined approach that manages risk through appropriate asset allocation. We recognize that each client’s needs and goals are different. Subsequently, portfolio strategies and underlying investment vehicles may vary. The following are common strategies we employ in client portfolios:
- “Passive” Investing (Exchange Traded Funds or ETFs)
- “Active” Investing (Passive Core / Active Satellites)
- “Factor-based” Investing (using academic research to obtain yield advantage)
Modern Portfolio Theory (MPT)
MPT is an award-winning theory developed by Nobel Prize winner Harry Markowitz in 1952. According to Investopedia, MPT is “A concept from finance that describes ways of diversifying and allocating assets in a financial portfolio in order to maximize the portfolio’s expected return given the owner’s risk tolerance.”
Global Market Portfolio
Nobel Prize winner William Sharpe concluded in 1964 that another Nobel Prize winner, James Tobin’s super-efficient portfolio is the “global market portfolio,” which represents how all investors collectively allocate their investments.
Nobel Prize winner Eugene Fama demonstrated in 1965 that the stock market is highly “efficient” and that price movements are difficult, if not impossible, to predict in the short-term.
Given the above three philosophies from 4 Nobel Prize winners, we do not subscribe to market timing or day-trading of individual equity selections, sectors, or geographies.
Investing During Retirement
Setting up a Core / Satellite portfolio can be the foundation of a “bucket strategy” to help manage your retirement portfolio. For example, consider the “Passive Core” to be a Global ETF portfolio and a couple “satellite” funds for cash withdrawals and emergency funds. Now you have a strategy to withdraw from the satellite accounts for your expenses or goals needs.
Annual rebalancing can put everything back to the original portfolio design.
Example of Core / Satellite for a Retirement Portfolio
Safe Withdrawal Rates
If you are at or near retirement, you may have a lot of questions on how your current portfolio may segue into a retirement portfolio and how to safely withdraw from the retirement portfolio. Much study has been given to Safe Withdrawal Rates and how to generate a retirement income stream. We won’t explore the details here, but the bottom line questions are:
- How much can you safely withdraw from your portfolio each year?
- From which fund types should you withdraw from?
Past performance is not indicative of future performance. Investing involves substantial risk and has the potential for partial or complete loss of funds invested. Investments mentioned may not be suitable for all investors. Before investing in any investment product, potential investors should consult their financial or tax advisor, accountant, or attorney with regard to their specific situation.
We strive to create portfolios that are diversified, tax-efficient and utilize low-cost investments whenever practical. More on Investing Insights