All too often, we witness individual investors pursuing investment options that, while steeped in good intention, lack a well-defined process and strategy; resulting in an investment plan that may be more expensive than necessary, overly risky, and not meeting the goals of the investor as much as the “salesman” involved.
Our approach is a disciplined process to help you properly build a portfolio that matches your risk tolerance while meeting the return requirements for your long-term success.
Most folks can tell us how much their investments have returned in the past, but rarely can they quantify how much risk their portfolio carries. Without understanding and quantifying risk, returns can be misleading, and you may be shocked at the outcome.
Our first step is to have you complete a questionnaire, so we can get a gauge of your risk tolerance. Then we use a fee-based, professional manager selection process. And once the manager is selected, we walk you through a well-defined, disciplined process to match you with the appropriate portfolio.
Our goal is to bring you, the individual investor, the same level of expertise enjoyed by large institutional investors.
One of our specialties is designing an investment plan that protects you from market downturns that can disrupt your long-term investment plans which could have a huge impact on your personal goals in retirement.
What follows are the options we use for our clients.
We have multiple portfolio options from the very conservative portfolio to the aggressive portfolio all to match your risk tolerance and objectives.
These portfolios follow the Efficient Frontier of investing developed by Harry Markowitz in 1952. Dr. Markowitz was a professor of economics at the University of California, San Deigo. He pioneered work in the concept known as Modern Portfolio Theory.
Below is an example of what a “Moderate” portfolio of roughly 50% stock and 50% bonds could like:
The above is a “middle of the road” portfolio example. A more aggressive, thus riskier portfolio may have 80% stock funds and 20% bond funds. And a more conservative, and less risky portfolio may have a mix of 20% stock funds and 80% bond funds.
The objective is to determine through a disciplined process where you fit on the spectrum from conservative to aggressive investor, and then match you to the appropriate portfolio.
The weakness of building investment portfolios using Modern Portfolio Theory (as described in the Exchange Traded Fund/Mutual Fund Portfolios section), is they are generally a buy and hold strategy. In other words, a portfolio of 80% stocks and 20% bonds will always have roughly that mix of stock and bonds no matter what is occurring in the stock and bond markets.
A tactical fund manager adds another strategy layer to a portfolio, by moving investment funds out of the stock market and into bonds or cash when there is excess stock market volatility in an effort to protect the portfolio from a major stock market sell-off.
A tactical manager IS NOT trying to buy low and sell high.
The concept is to smooth out returns so your portfolio avoids most of a major stock market downturn.
Our experience is that when there is a major stock market downturn, individual investors make poor decisions regarding their investment portfolio.
By using a tactical manager, we can help people avoid some of the angst of a stock market downturn and keep their goals and objectives from being disrupted by either volatile markets or poor individual decisions.
You might call tactical management a loss-averse investment approach.
These are not your granddads’ annuities!
The key thing to understand is that we are not talking old-school commissioned annuities with long, multi-year lockups and potentially very high internal expenses.
Fee based annuities are designed with the fiduciary advisor in mind.
One-Year Contract: Most of the fee-based annuity contracts we work with are a one-year annuity contact. You read that right, a one-year annuity.
If you want out after one year, you get out, no charges. Old school annuities are famous for their expensive back-end surrender charges.
No Explicit Annuity Charges. The fee-based annuities we work with usually have no explicit internal charges, and the fee you pay is the advisory fee just as you would in any other fee-based investment account.
The olde school commission-based annuities are famous for their high internal charges and back-end surrender charges.
Downside Market Protection. Because we can build in downside market buffers, which protects you from a certain percentage of a stock market downturn over the 12 months of your annuity contract.
For example, a moderate investor may want 10% downside protection. If their stock index goes down 9% over the course of their 12-month contract they suffer no account value loss (remember, there is still the advisor fee). If however, the stock market index went down 13%, the investor would suffer a 3% loss.
A slightly more conservative investor might want a 15% downside protection buffer.
We also have options for 20%,40%, and 100% downside buffer protection.
Upside Market Participation. On the flip side if your stock market index increases over your 12-month contract, you would get some positive gain up to a pre-determined cap. The cap is lower for the increasing amount downside buffer protection you choose.
Various Market Indexes. Fee-based annuities have a number of different market indexes to link your investment to from the S&P 500, Dow Jones Industrial Average, NASDAQ, Russell 2000, as examples.
There are many unique features to fee-based annuities that help us manage your investments in a unique manner.
Fiduciary Advisor. We are working on your behalf as a fiduciary advisor and we recommend a fee-based annuity if we believe it could be to your benefit. More and more of our clients are using fee-based annuities as part of their overall investment strategy.
One of my prospective clients recently said, “I didn’t know these existing”. That is common feedback. In fact, if you talk to a commissioned broker, they probably are saying the same thing inside their mind.
Buffered Index Funds use similar concepts as the fee-based annuity, but without the insurance wrapper.
For those investors who do not want to use new the modern fee-based annuity, but like the concept in general we then turn to Buffered Index Funds.