Managing Your Assets, Made Easy
I believe the best investment plan is like an automobile. It should get you from one place to another. Different automobiles are designed for different tasks. You might use a van to get your children to the soccer game, and you would probably want a dragster if you were trying to go a 1/4 of a mile in the fastest time possible.
The same holds true for investment portfolios. The structure of those portfolios depends on where you are trying to go.
The engineers designing the van are going to select each piece to work together carefully to create the optimum vehicle to get your children to their soccer game. They are never going to put dragster tires on your van.
To help design the portfolio that works best for your unique situation I have created what I call RCS 5 Factor Investing.
Factor 1:
Find Your Personal Risk Tolerance
Find Your Personal Risk Tolerance
In my 32 years of advising clients and managing portfolios, I found several ways that clients underperformed the market. The most common was creating portfolios that did not match their personal risk tolerance. They took more risk than they could tolerate and when things fell apart, they sold out in a panic. Working with thousands of individual investors, I devised a series of tests that allow you to pinpoint your personal risk tolerance, which is the first step in creating your diversified investment portfolio. Create a portfolio you can tolerate instead of assuming you or your advisor can move out before the next big downturn.
Factor 3:
Find And Use Low Cost Investments
Find And Use Low Cost Investments
Every Mutual Fund, Index Fund and Exchange Traded Fund (ETF) charges an internal fee called the expense ratio. This is only the start of the fees you will pay. You cannot control the markets, but you can control your investment management fees and expenses. Choosing investments with the lowest cost allows you to keep more of what you earn. You get what you pay for does not apply to investing. Higher fees often do not mean better performance.
Factor 2:
Use the Art and Science of Asset Allocation
Use The Art And Science Of Asset Allocation
Once the personal risk tolerance for the portfolio is identified, each investment must be carefully selected to work together, and this is what asset allocation is all about. Done properly, asset allocation is a mathematical approach to determine what assets to buy, and most importantly, how much to buy.
Factor 4:
Use Tax-Efficient Investments
Use Tax-Efficient Investments
Taxes are another important, often controllable, aspect of designing and creating your investment portfolio. There are three main areas to discover when designing your portfolio: finding tax-efficient investments, designing the portfolio to maximize tax-loss harvesting and using proper asset location to minimize taxes.
Factor 5 :
Design Portfolios To Take Advantage Of Rebalancing
Design Portfolios To Take Advantage of Rebalancing
Asset allocation is more than a one-time occurrence, as we need to maintain the chosen asset allocation portfolio. Each fund in your portfolio is likely to grow at different paces from the others. If left unattended, a portfolio will diverge from its original balance toward points that have more risk, less return, or possibly both. This is known as portfolio drift. We need to be vigilant to make sure the balance remains in the proportions we had identified in our asset allocation construction, as this will help keep the portfolio from drifting out of your personal risk tolerance. Once you understand how to rebalance portfolios you can see ways to design your portfolio to take advantage of rebalancing by combining uncorrelated asset classes.
I have found the more you understand about this 5-factor investing technique, the easier it is for us to work collaboratively on helping you reach your financial goals.
In my 32 years of advising clients and managing portfolios, I found several ways that clients underperformed the market. The most common was creating portfolios that did not match their personal risk tolerance. They took more risk than they could tolerate and when things fell apart, they sold out in a panic. Working with thousands of individual investors, I devised a series of tests that allow you to pinpoint your personal risk tolerance, which is the first step in creating your diversified investment portfolio. Create a portfolio you can tolerate instead of assuming you or your advisor can move out before the next big downturn.
Once the personal risk tolerance for the portfolio is identified, each investment must be carefully selected to work together, and this is what asset allocation is all about. Done properly, asset allocation is a mathematical approach to determine what assets to buy, and most importantly, how much to buy.
Every Mutual Fund, Index Fund and Exchange Traded Fund (ETF) charges an internal fee called the expense ratio. This is only the start of the fees you will pay. You cannot control the markets, but you can control your investment management fees and expenses. Choosing investments with the lowest cost allows you to keep more of what you earn. You get what you pay for does not apply to investing. Higher fees often do not mean better performance.
Taxes are another important, often controllable, aspect of designing and creating your investment portfolio. There are three main areas to discover when designing your portfolio: finding tax-efficient investments, designing the portfolio to maximize tax-loss harvesting and using proper asset location to minimize taxes.
Asset allocation is more than a one-time occurrence, as we need to maintain the chosen asset allocation portfolio. Each fund in your portfolio is likely to grow at different paces from the others. If left unattended, a portfolio will diverge from its original balance toward points that have more risk, less return, or possibly both. This is known as portfolio drift. We need to be vigilant to make sure the balance remains in the proportions we had identified in our asset allocation construction, as this will help keep the portfolio from drifting out of your personal risk tolerance. Once you understand how to rebalance portfolios you can see ways to design your portfolio to take advantage of rebalancing by combining uncorrelated asset classes.