Broker Check

Is Someone Reviewing My Investments Regularly?

May 19, 2022

We hope that you are doing well right now. The world seems very topsy-turvy. Inflation is on everyone’s mind with the inflation rate being over 8% when the long-term inflation rate is 3% and in the last 10 years and prior to last year inflation has been around 2%. Inflation is hitting almost all of us with high gas prices. We had a client tell us his normal grocery bill was $175 each week and now it's up to about $230 each week. All of us are feeling those types of pinches. At one point in time, a lot of folks were saying that it was temporary. Now a lot of financial professionals we talk to and listen to are saying inflation may be at these higher rates for another year or so. Stick in there. Remember, over the long-term there is no better hedge for inflation than stocks. Better than precious metals, real estate, and all other major asset classes.

We are taking a lot of phone calls and having a lot of meetings regarding the current state of the markets. People are concerned and that is why we are here. We are here to listen to your concerns and determine if you should keep things as is or make changes. Ultimately, it is your money and you are always in control. We are fiduciaries and guides and provide recommendations. At the end of the day, we work with you as a team but you are in charge of your money.

One of the questions we are getting a lot is: Is Someone Reviewing My Investments Regularly? Several weeks ago, Michael wrote an article on our Investment Process.  I will share some of that here.

First of all it is important to remember the major role that we are playing for our clients. We provide holistic financial planning which includes investments, insurance, estate planning, taxes, health care, retirement income, cash flow and debt management, and educational planning. Investments are a major part of what we do. However, they are just one component of your overall financial life and plan. We have to invest time in the other areas as well as maintain our competency on them. For instance, it does you no good to make great investment returns if they are not managed tax efficiently. All gains are eaten up in taxes. 

Additionally, for majority of people, the investments particularly retirement accounts are there to supplement one’s retirement income needs. The guaranteed income that people from Social Security, pensions, and other sources really provide the foundation and base. It is important to really think of these first and then let the investments support them instead of vice versa.

With that being said, the answer is that we are definitely reviewing clients’ investments regularly. It is important to understand what that means and what that does not mean.

  • We have a investment committee that is made up of the financial planners on our team. Our investment committee is constantly meeting on a regular basis to do due diligence on the investments that our clients have. This includes reviewing the portfolios at a high level that includes what is going on with the economy. Also, the investment committee reviews the third-party money managers we use and their management of portfolios. Recently most of the high-level discussion has dealt with inflation, the Federal Reserve’s response to it, potential chances of inflation, and effect on the consumer.
  • We work with a Chartered Financial Analyst (CFA) which is one of the most rigorous investment designations that provides very detailed analysis of our portfolios. This work includes:
    • Analyzing each of the specific investments in our portfolios and scoring them on the performance within their classification. Investments may be put on watch list, replaced, or kept. A part of this is making charge the management teams and investment companies of mutual funds, exchange traded funds, and index funds are having major internal changes that might impact the performance.
    • We look for opportunities where asset classes might be undervalued or room for growth and make changes from there.
    • How each of the investments fit together. It does not do any good to have multiple investments if they have the same underlying investments within them. We truly want diversification. This is crucial to managing the risk and volatility within the portfolio.
  • Our investment committee does regular due diligence meetings with third-party money managers who may manage the complete portfolio for the client. That manager is constantly looking at the individual investments of the portfolio. We review with them those investments as well as their overall approach and performance.
  • Our investment committee also does individual due diligence meetings with individual fund and insurance companies to better understand the specifics of those investments. We look at our job like scientists. We want to look underneath rocks. In some cases, it validates why we might use a specific investment. In other cases, it validates why we do not use something. We want to be agnostic and take an open mind.
  • Just like a scientist, we know there is no perfect investment out there. Each investment has strengths and weaknesses. Within that we have to determine how things will perform in best-case scenario, worst-case scenario, and most likely scenario.

What our approach is not:

  • We are not day traders who are buying and selling investments on a daily basis or market timers particularly stocks. We do not believe one can have sustainable performance without triggering major tax issues and trading costs being in and out of the market on a consistent basis. We do not say it can't be done but the odds of sustainable performance are very low. Think of the likeliness of winning the lottery. There are institutional money managers that focus on market timing but the minimum investment is usually at the billion-dollar level. An important aside to this. You have to remember what you are investing in. You are investing in the best run companies not only in the U.S. but the world. The temporary value of those companies may change in the short term but the long-term value is there because they provide products and services we use and need as consumers. Said in another way, major company stocks can fluctuate wildly in the short term because of market conditions. However, these companies have proven themselves to maintain their long-term value over time.
  • We believe in the bucket approach to investing where one has money in the now, soon, and later buckets. If people have money in stocks particularly individual stocks, we believe they should look at that as long-term holding for the later bucket for 10 years and beyond. Going back to the point above, we do not believe in getting in and out.
  • Some clients have the expectation that we are monitoring their accounts to prevent any losses to their portfolio. This would be an impossible task. If a client does not want any short-term losses in their portfolios or any volatility, they really are limited to two broad options, cash or fixed or indexed annuities. These are products that are designed to have the principal never go below investment (as long as one does not withdraw the principal).

It is understandable under times like this that folks would ask us this question. People want to know is someone awake at the wheel? We are, it just means that we are not driving off the road and sitting in the park and ride every time it rains. We believe that you have to weather proof your house before the storm not during it. We know that corrections, bear markets, and volatility are always out there. We just do not know exactly when and how severe it will be. That is why we also believe in good holistic financial planning. Having adequate cash reserves and cash flow, manageable debt and spending levels, and living within one’s means.