Providing A Path To Your Financial Goals

We believe the key to investment success is the alignment of investment strategies with an investor’s goals and tolerance for risk.  Investment goals differ by individual and each individual may have multiple goals with different characteristics such as time frames and amounts.

Risk and tolerance for risk mean different things to different people.  For most clients the risk of not reaching a goal is the most important risk to address.  While eliminating risk completely is not possible, it can be managed by separating out each goal in terms of time frame and applying a separate investment strategy to each of those goals.  This approach increases the chances the investor stick with a strategy long enough for it to succeed. In addition to clearly identifying an investment goal and designing the strategy to align with it, the following components are also important.

Asset Allocation and Portfolio Structure

Asset allocation is the fancy word for diversification of investments among the different classes of assets.  It is the opposite of “putting all your eggs in one basket.” The major asset classes are stocks, bonds and cash.  Within each of these major classes there are sub-classes and even sub-classes within these sub-classes.

The percentage allocation to each asset class is what determines the degree of short term upward and downward movement of the portfolio.  This movement has many names in the investment community, such as volatility, standard deviation or risk.  It is too complicated to address here, but trust us when we say – the long term returns of a portfolio are mostly determined by the amount of up and down volatility, with less being better.

Our job is to try to determine a mix of asset classes that will achieve the highest return we can get for the amount of volatility (risk) a client is willing to absorb.

Tax Management

Tax management involves the application of tax strategies to minimize tax liability associated with investment portfolios.  The first step in tax management is to understand the client’s overall income tax situation and to coordinate it with the tax consequences from their portfolio.  It sometimes even involves coordinating with the client’s estate tax strategy.  Some of the tax minimization techniques that we employ are:

  • Using investment vehicles that do not distribute significant capital gains.
  • Tax lot accounting that uses the highest cost basis holdings when assets are sold.
  • Tax loss harvesting (taking losses from short term market swings while staying fully invested).
  • Coordinating management of taxable and non-taxable accounts to minimize taxable gains.

Portfolio Holdings and active managers who add value

Very few active managers, who try to beat the market benchmarks, of stocks have been successful in consistently producing after-tax and after-fee returns above their respective market index over long periods of time. We believe that rather than chase the small chance of beating the market, it is more productive to invest in a broad range of securities using low cost index investment vehicles that are designed to track the market.  We do use some enhanced investment index funds that are constructed to take advantage of market factors that studies have shown produce slightly better returns over long periods of time.

For bonds, we have found that active bond managers have been successful, over long periods of time, in achieving returns above their market benchmarks; so we do use actively managed bond investment vehicles.

Continuous Portfolio Management

We do not believe in setting it and forgetting it.  We continuously evaluate the mix of asset classes in each client’s asset allocation strategy, as well their investment tax strategy, in light of current and future tax years.  We also regularly monitor the performance of each of the investment vehicles we use and continually search for vehicles that perform better.