Why are you investing? Is it to beat an index or achieve a personal goal? Is it to select the newest investment or achieve a dream? Most of us are investing to achieve a personal goal or fulfill a need such as having retirement income, funding education funding, going on a vacation or remodeling a home.
While many firms focus on selling the latest investment or trying to beat a benchmark, we focus on you and achieving your vision. Rather than taking an investment-centric approach that looks at the portfolio and tries to determine how your life can be, we want to understand what your personal vision is for the future and then develop a holistic plan to achieve it. The investments themselves are simply a means to an end. We call this Personal Vision Planning®.
Focus on Your Vision, Not on Market Performance
The most important benchmark is whether you can maintain and enhance your standard of living, not some market index. Performance should focus on your needs, wants and vision — not a random number or value. Markets will go up and down, but don’t focus on that — focus on your personal vision.
As broader markets have set new record highs, many investors are comparing the performance of their portfolios against various market indexes. In most cases, people’s portfolios do not contain the same investments as the index they are comparing themselves to, so the comparison is irrelevant.
Asset Allocation Is More Important than Selection
Asset allocation is the practice of mixing non-correlating assets together to find an optimal balance of risk and return based on your investment profile. The idea is to minimize your portfolio risk while maximizing your returns.
Asset selection, or securities selection, is the practice of building your portfolio with a variety of investments that align with your asset-allocation strategy.
According to an industry consultant with 30 years of experience in the financial services industry, “While both asset allocation and selecting appropriate securities is important to an investment strategy, it is more important to target the right asset allocation” (Investopedia, September 3, 2016). Studies have shown that asset allocation can account for more than 90% of your return (CFA, Randolph Hood, and Gilbert L. Beebower (known collectively as BHB), “Determinants of Portfolio Performance,” published in the Financial Analysts Journal).
We agree that asset allocation is the most important factor in determining your investment success — not investment selection. We have a rigorous process for screening, selecting and monitoring investments. This is the science. Developing an allocation and broad plan based on your personal goals, vision and needs is the art.
Leave Emotions Out of Financial Decisions
Regardless of what transpires, we are here for you. Chasing past performance or making decisions based on emotions has led to significantly reduced returns for many people. This is why the average equity mutual fund investor underperforms the average fund by about 40 percent over 20- year periods (Nick Murray Interactive, April 2017).