Time For A Financial Alignment

No one likes potholes.

Not only because of the annoyance they create, but also the added cost of getting your car realigned as a result.

Often times, you may not hit anything major but your steering wheel begins to shake and your car starts to pull to the left after reaching 45mph.  This more subtle warning sign lets you know it’s time for an alignment to prevent extra wear and tear on your tires or even worse, a blow-out.

Watch Out For Potholes


Unfortunately, with an investment portfolio we don’t always feel our steering wheel shake when potholes emerge, to let us know it’s time for realignment.

In fact, when investors do begin seeing bad returns, it often leads them to make bad choices resulting in costly mistakes. We have become well aware of this natural human tendency, which is why we rely heavily on our research themes.

By conducting our investment review process quarterly, we review client portfolios and realign according to our research themes if necessary. During our analysis, we monitor how closely the client’s current investment mix matches our long-term investment strategy.

We also measure the level at which our clients’ stocks are positioned within the allocation ranges we establish during our initial planning work.  If the stock percentage is above or below the range, we know an adjustment should be made.

Mental Accounting

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Many investors have a tendency to bucket their investment accounts.

They assign different purposes for their accounts which in turn require different investment strategies for each account.  For an investor to reach their optimal portfolio return, we feel it’s vital to have a coordinated investment strategy across all investment accounts.

Qualified plans give us the best example of this philosophy.  Many investment choices offered in 401k’s and 403b’s are limited compared to what you might be able to access in other accounts.  In a 401k, there may be a great international fund choice but only average domestic choices.  In this scenario, we may want to use the attractive international investment for all the funds in the 401k and surround it with more quality choices in other accounts where we have more investment selection.

I’ll Owe More in Taxes?!?

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Don’t let the tax tail wag the investment dog.  In other words, there are times when heavy realized gains in a holding could lower the motivation to sell if you were strictly looking at the scenario from a tax perspective.  However, if this same security represented 75% of the portfolio and was comprised of one individual stock, the concentration risk would most likely outweigh the desire to hold on to the stock to avoid incurring a large capital gain.

Decisions such as these take careful evaluation and can only truly be assessed by taking the “big picture” into consideration.

Other Factors

Our investment review process allows us to assure client portfolios are in good working order. To accomplish this, we consider specific factors such as:

  • a client’s age
  • family relationships
  • tax considerations
  • risk levels
  • latest communications with the client

This helps to assure we are not missing any potential improvements that could be made to their overall investment situation.  Our investment review process helps us take great care in assuring our client’s investment mix matches their risk preferences.

Do you have a review process for your investments?

This is the second part of a 3-part series we’re calling “Behind the Scenes.” It is our hope that this series will give our clients a more transparent look at our business so they can better understand the diligence we employ with each client review.

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