"Following the standards set by others tends to obscure the vision of superlative achievement. We, therefore, set the standard for others to follow."

Planning by Design: Asset Management

Financial planning and investment management are often confused as one in the same. The two differ in that financial planning is a road map. Investment management is one of the tools for traveling the road that you have chosen.

The goal of investment management is to first identify an outcome. Then, within an investment portfolio, investment risk and expectations need to be managed, keeping the outcome in mind. However, within any portfolio structure the results of investing are not guaranteed. The key is vigilance. Any professional can interpret your comments and investment designs. Yet, if the outcome is not what you wanted it is up to you to let your advisors know what your concerns are.

The process of investment management is often divided into three basic approaches: Market timing, indexing, and active management. Each has its own argument for success. Yet, in our opinion only the two latter approaches have proven historically consistent in delivering a positive result over longer periods of time.

Market Timing: The least favored approach, in our opinion, is investment timing or market timing. The timing process, whether within a mutual fund or through active investment managers, requires a third party to make projections as to when a person should be in or out of a given investment market. This manager then moves money into equities, bonds, and/or cash, based on his or her assessment.

There is no question that, while it may sound terrific as a concept, even the best of "timers" tend to have success in spurts. Since no one can predict the future, this method tends to be inefficient over long periods of time. For a short period, a "timer" may do a fantastic job moving in and out at exactly the right time. Then the timer tends to fall flat, leaving the portfolio with a less then optimal effect.

Active Management: In an effort to refine investment strategies, portfolio managers tend to build strategies around value, growth, or a blend of these two approaches within a given portfolio. This approach requires the manager to seek out companies that fall within the appropriate investment styles or categories. Then, as time moves forward, the manager actively moves stocks in and out of a portfolio as he seeks a targeted result.

While this approach seems valid within different markets, its outcome is usually mixed, and this mixed result is intentional. The idea behind this approach is to mitigate certain risks by having different parts of the portfolio exposed to different market factors.

Since there are no guarantees within the investment world, the advantage of equity investments through a diversified approach can be, in our opinion, a better method of wealth accumulation. By investing in a diversified portfolio with differing approaches, the chances of reaching a desired outcome may be enhanced.

Indexing: The next approach is a portfolio that is managed by using index funds, Exchange Traded Funds (ETFs) or similar investment vehicles.

It has been argued that active management over time has rarely beat the market averages. Out of the universe of thousands of mutual funds only a few have been able to beat the S&P 500 consistently over long periods of time. Out of those, most were either index funds for other indices. Short-term winners tend to be sector funds that may ride a particular market wave that falls off, leaving the funds in the category of underperformers. With the odds of beating the S&P running at relatively very low odds, a portfolio of index funds can offer an option that leads to an average market result.

So which option is best? Is Indexing better than active management? The answer is found in the objectives of the portfolio. A goal of pure growth with no other considerations may lend itself to indexing. However, when issues of capital preservation or market volatility enter in, other active approaches may prove more suitable. For example, in declining markets, value investments may prove a better hedge than growth investments. Likewise, in markets with rising interest rates, money market funds may be a safer haven than long-term bonds.

Understanding Investment Objectives

In order to develop an investment program, it is important to establish long-term goals and objectives to provide direction for the future. The first step in establishing a goal is to analyze the current financial condition. This can be accomplished by preparing personal financial statements and a cash flow analysis. In addition, any planning should also include making arrangements for cash reserves that are available for emergencies and other risk management concerns.

Once the current financial condition has been evaluated, the second step is to establish investment policies or objectives. There are essentially three primary investment goals. These are preservation of principal, generation of income and growth of principal. When a policy is formed it typically looks at all three of these investment goals and blends them, based on a tolerance for investment risk, into a portfolio design.

Making The Portfolio Design Work For You

While the process is relatively sophisticated, it can also be elegantly simple, making it easier for you. As noted, we start by defining the main goals you have for your lifethe purpose of your investments. Importantly, we identify aspirations (a.k.a. Ideal goals) to learn about not only what you need, but also what you would like. We then understand your priorities to focus us on solutions that meet the goals where you place the highest value.

We then do a "stress testing" analysis that simulates 1,000 market environments, both good and bad. By combining your acceptable goals, the dreams you prioritize and the stress testing analytics, we design a customized recommendation of goals and investment strategy.

You can have increased confidence and comfort that the design is achievable while avoiding unnecessary investment risk or undue sacrifice to your lifestyle at any point during your lifetime. If your goals and priorities are properly understood, the portfolio design will reflect the possibilities of you attaining those goals. Then we can help you implement the recommended set of goals along with your chosen investment strategy.

Reaching a goal will involve looking at options, as well as short-term strategies aimed at your success. Putting this off for ten or twenty years may make attaining your outcomes unattainable.