Disciplined Investment Management Process
Our Disciplined Investment Management Process is a piece of our Continuous Service. To manage your investments with an effective strategy we believe you need:
Discipline – Emotions are detrimental to an effective investment strategy, so having discipline reduces the chance that emotions will negatively impact your results.
Research – It is important to first determine the factors you will be using to make investment decisions and then to continuously research those factors to look for opportunities and risks.
Diligence – A well designed strategy is useless unless you apply diligence. It is important to have a schedule to conduct regular reviews of your portfolio.
Our Disciplined Investment Management process takes an active, opportunistic approach to managing your portfolio. With regular attention, we are able to help you take advantage of tax efficiencies and cost savings, while utilizing a comprehensive and coordinated strategy.
FSI helps remove the emotional behavior and speculation involved with investment decisions and instead focuses on in-house research, your risk tolerance and your risk capacity. This is provided through a team consisting of Certified Financial Planners™ and operations professionals, who all work together to manage your portfolio.
Our Disciplined Investment Management Process Focuses On:
• Determining Your Investment Profile
• Our Unique Research Process
• Our Investment Review Process
• Our Portfolio Maintenance Process
Determining Your Investment Profile
Successful investment management requires an effective, disciplined strategy. At Financial Symmetry, we customize your investment strategy based on your individual investment profile. Our proprietary models and research help us determine the appropriate asset allocation for your portfolio. We find this by determining your risk profile, which is based on your risk capacity and risk tolerance.
The purpose of risk capacity is to determine the percentages of a portfolio that should be allocated to stocks, bonds and cash. It is calculated by totaling the amount of annual deposits and withdrawals from your accounts and comparing it to your total portfolio value. The higher your capacity for risk, the higher the percentage of your portfolio that can be allocated to stocks. While stocks offer higher long-term return potential than cash or bonds, they have greater short term volatility, as noted in the graph. Measuring risk capacity helps us allocate money you will not need in the next few years to stock investments, while allocating money you will need in the next few years to bonds or cash, which are less volatile investments.
Unlike risk capacity, risk tolerance is qualitative, and it determines the amount of market risk that you can tolerate emotionally. Based on your risk capacity, you might be financially able to hold a lot of stock, but emotionally you might not be able to handle the market volatility. Risk tolerance adjusts your portfolio for these factors. “How did you react to the market downturn in 2007-2009?” is an example of a question we may ask to help determine your risk tolerance. We increase your stock allocation if you are more willing to take risk, and we decrease your stock allocation if you are more risk averse.
Your Asset Allocation
The outcome of your investment profile determines your optimal asset allocation. We start with your risk capacity and then adjust your asset allocation based on your risk tolerance.
We develop a percentage range because it allows FSI to adjust your portfolio based on market conditions. When we sense that stocks are cheap, your stock allocation will increase, and when stocks are expensive, your stock allocation will decrease within your set range. Bond and cash allocations will depend on current interest rates and the expected return for each.
After the stock, bond and cash ranges are determined, specific securities are chosen for your accounts. Your portfolio will be properly diversified using different types of mutual funds (domestic, foreign, large-cap, small-cap, bond, etc.) weighted toward areas with higher expected return based on our analysis of current valuations.
Our Unique Research Process
While passive investing is a valid investment strategy, we believe that we can achieve better performance by using an active approach. We rely on a consistent and disciplined process that drives a continuously, updated investment strategy. Our process helps us find areas where we believe we can gain a competitive advantage in the market.
Our investment strategy is dynamic and changes based on current economic and market conditions. Compound that with the constant changes life brings, and the need for consistent oversight is clear. Inconsistent or infrequent investment reviews can result in missed investment opportunities, leading to underperformance.
Our research process is composed of two categories: Economic & Market Outlook and Securities Selection.
Economic & Market Outlook
The purpose of our ‘Outlook’ is to develop, monitor and refine themes to use when reviewing your portfolio. The following are some themes that help guide our decisions:
• Identifying areas of the market that are over or under priced
• Setting price levels for buying and selling stocks, bonds or cash
• Weighing short-term versus long-term risk/reward
• Determining how much should we be invested in foreign stocks compared to domestic stocks
Our Outlook is discussed on a monthly basis, and a summary of our findings is included with our investment reviews. From time to time, our Outlook may call for a special market
commentary, which we deliver to you through postal mail, email and blog posts.
Since our primary focus is our clients’ personal situations, it is important to appropriately leverage our research resources. We realize that no one can continuously monitor all necessary areas of the markets, so we delegate some of the process to fund managers through the use of mutual funds. Mutual funds allow us to employ our Outlook themes by choosing appropriate fund strategies and leave individual security selections up to the fund managers. Mutual funds reduce market risk through diversification, which allows us to manage our time on your portfolio more efficiently.
We have identified characteristics common to above-average fund managers, which can contribute additional value to our clients.
Some of these characteristics are:
• Reasonable cost
• Successful track record
• Focus on investing, not marketing
• Ethical company culture
Our Investment Review Process
Our process holds us accountable for your portfolio and provides you with a full performance report across all of your investments. We invest with a 3-5 year focus that helps us avoid emotional decisions based on current conditions. Reacting to emotions causes most investors to under-perform.
A portfolio review involves the following three items:
- Determining if your research indicates necessary changes to asset classes or individual holdings.
- Rebalancing your asset allocation if it is out of line with your guidelines.
- Assessing performance to determine whether your strategy has been effective. Performance over full market cycles is more meaningful than shorter term results.
We conduct Investment Reviews at the following times:
- When large cash flows occur
- When changes to personal situations occur
- Upon significant changes to FSI’s outlook or strategy
During your investment review, we will perform a complete analysis of your investment situation to reduce your risk and increase your opportunities through Portfolio Analysis, Recommendations, and Execution.
We analyze your portfolio and develop recommendations to align your portfolio with our current Outlook, taking into account your unique
circumstances. This includes:
• Evaluation of cash flows into and out of your accounts
• Personalized commentary of your portfolio
• Performance reports of your complete portfolio, comparing your investments to benchmarks
We encourage you to discuss the recommendations with your advisor, especially if you have any questions or if your personal circumstances have changed.
Shortly after the close of your reporting quarter, you will receive your investment review. Your review may include recommendations which require your approval before we can take action. Approval is accepted by email, phone, fax, postal mail or in person.
Once we receive your approval, we execute transactions for you. After execution, recommendations are verified for accuracy.
Our Portfolio Maintenance Process
With Financial Symmetry, you are hiring more than just an investment advisor — you are hiring an entire team.
In addition to providing peace of mind that your assets are being managed soundly, our service saves you time by taking the following necessary tasks off your plate:
- Managing accounts
- Evaluating contribution rates and investment allocations (401ks, IRAs, etc.)
- Processing Required Minimum Distributions (RMDs)
- Updating beneficiaries, names, or addresses
- Processing asset movement requests (account consolidations, withdrawals and rollovers)
- Preparing account setup or maintenance paperwork
- Coordinating annual reviews with you — in person, over the phone or via web conference
- Maximize tax efficiency through asset location, tax-loss harvesting and contribution/withdrawal strategies