Our Investment Process

We are in the business of helping our clients pursue their financial goals, and as experienced CFPs, do so with a financial planning approach. When constructing investment portfolios, this approach involves a “top-down” process, which can add value in two ways; it helps to redefine the client-advisor relationship, and provides structure and discipline when mapping portfolios specifically to each client’s individual case.

Top Down Portfolio Construction Process:

• Identify & Prioritize Individual Goals
• Assess Risk Tolerance and Time Horizon
• Initial Asset Allocation Decision
• Balance Active Management and Index Funds
• Portfolio Implementation
• On-Going Monitoring

Identify & Prioritize Individual Goals: The first step in a top down investment process is to clarify and define the financial goals we are seeking to help our clients pursue. From there we can analyze the parameters necessary for a successful outcome, range of returns needed, time horizons, and current available resources, etc.

Risk Tolerance & Time Horizon: The next step in the top-down process is to assess each client’s individual risk tolerance and to understand their time horizon. Is the client’s risk propensity high, moderate, or low? Will the portfolio be needed to generate both retirement income and growth over 20-30 years, or will monies be needed sooner, perhaps to purchase a home, or fund a wedding? We have various tools at our disposal that can better help us evaluate each client’s unique tolerance for investment risk.

Asset Allocation: The next step is to make the initial asset allocation decision, based on the client’s goal, time horizon, and risk tolerance. This decision means finding the right mix of assets best suited for each client, and it is crucial as studies have shown that the asset allocation decision is the most important part of the portfolio building process. Deciding how to allocate the portfolio often involves seeking additional sub-asset classes within each broad major asset class. For example, a sub-asset class within equities might include large companies, smaller companies, growth funds, income funds, global equities, etc. Such diversification is an important part of this step, as combining various asset classes and sub-asset classes, (some of which might offer low correlations to each other), may help to reduce the risks and volatility of the overall portfolio. Asset allocation and diversification does not ensure a profit or protect against a loss.

Active and Passive Management: We offer our clients a choice of including active management, indexing (passive), or both types within a portfolio. Active funds employ fund managers to research and pick securities in an attempt to outperform their relevant index or market average. Passive management does not try to pick individual securities; instead the aim is to simply reflect the performance of the broad market, or their applicable benchmark. Passive management also may take some of the emotions out of the investment selection process, which can sometimes be a positive thing.

• Core – Satellite: In the core-satellite approach to portfolio construction, a portion of the portfolio, (core), is invested in index funds to capture the broad market returns, while carefully selected active funds, (satellites), are added to the portfolio to provide the potential for extra returns and additional diversification.
  
  
• The Four Ps: When a portion of the portfolio involves utilizing mutual funds and / or exchange traded funds (ETFs), or managed funds, it can be helpful to evaluate the investment company by looking at the four Ps…
  
  
• People: What is the experience and expertise of the fund managers and their firm? How long have they been managing their fund?
• Process: How do they make their buy, sell, and hold decisions? What is their process and is it repeatable?
• Philosophy: Does the firm have a genuine commitment to the long term, and is their philosophy one which you are comfortable with?
• Performance: Past performance may be the least reliable predictor of future results. Is the fund’s recent success consistent with the firm’s general investment philosophy and process? Does the fund compare favorably with its relevant benchmark? This is true of both active and passive managers.

Portfolio Implementation: Once the portfolio has been constructed, monies need to be put to work. It can be advantageous to “wade into water” slowly versus jumping in all at once. This strategy is known as “dollar-cost-averaging”, and when done over a period of time, (say 6 to 12 months), may help to reduce the risk of putting all the money into the portfolio right before a steep market decline. Although it is not always profitable to do so, it can help to reduce some of the emotional anxiety of investing and can provide a means to invest consistently with discipline over time.Asset allocation and diversification does not ensure a profit or protect against a loss. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

OnGoing Monitoring: The above steps are just the beginning. At Wealth Planning Group, we spend considerable time and resources providing ongoing monitoring and evaluation of the portfolio. On a regular basis we review with each client their overall situation, their portfolio’s strategic allocations and performance, and will periodically rebalance the portfolio when necessary. As life situations occur and markets and economic conditions shift, we may adjust the portfolio as appropriate and as conditions warrant.

Investing involves risk including loss of principal. No strategy assures success or protects against loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.