First and foremost we believe a client needs to be integrally understood.
It is a given to know a client’s basics, but its also important to know clients well enough to feel connected and thus be able to be proactive.
We think about having a “four lens perspective”:
- Understanding your objective situation.
- Understanding your attitudes, views, likes, and dislikes.
- Understanding your values.
- Understanding your knowledge about finance and economics.
We work with a select number of clients so that we become familiar with these issues authentically. It’s impossible to sustain this understanding when an advisor has hundreds of relationships. (This is the norm at large retail firms and investment banks.)
An authentic relationship like this allows us to respond, have the opportunity to intelligently reflect and to be aware of what’s important as a client’s life changes.
We think a portfolio should be segmented by time- matching your portfolio to your needs.
In the mid 1990s I was managing a 70 million dollar portfolio for a new insurance company. It was my job to structure the portfolio, hire the managers, and report to the board of Directors quarterly.
In preparation I had to learn the structure of an insurance companies investments. I learned a pivotal lesson about portfolio management.
Insurance companies do not run their investments as one portfolio, they manage it as three portfolios- a short, an intermediate and a long term portfolio….matching assets to their needs overtime.
The benefit of this is that a portfolio becomes much more effective. Cash needs that are current come from the short term portfolio which is designed for conservation of capital and income.
A medium term portfolio may allow a bit more risk to allow for growth perhaps over a 5 to 10 years time frame.
A long term portfolio can then take risk shielded from the need to sell at the wrong time because two other layers of investments can be liquidated first. Psychologically and actually the investor in the third segment can “invest and relax” because of these other portfolios.
The history of the market has been summarized best as “temporary downs and permanent ups”. Just look at a long term stock market chart. It’s the lesson of every downturn no matter what the cause. Capitalism works! It may take some time but everyone wakes each day to create, be productive, and solve their problems.
Still hope and fear is in our DNA but by taking a third segment approach to long term investments, when fear comes, it’s easier to ignore the damaging short term impulse to sell.
What is good for insurance companies is also good for individuals.
Just ask Warren Buffet..
We think it is important to properly index long term investments.
If you ask the average investor or firm about wealth management they would have you believe that wealth management has been around for over a hundred years and that the conclusions they reach are based on generations of experience.
However, as one of the first Morgan Stanley trainees in 1984, I can tell you that is not be case. It’s actually a young industry and a lot has changed.
Picking stocks was the cornerstone of financial management in the 1970s up until the middle 1980s when the Bulge bracket firms and the good old boy information network ruled. Then mutual funds, money managers, and distribution of these funds became popularized during the 1990s. Retail firms like Merrill Lynch started to gain ground on the Investment banks as highlighted by the purchase of Morgan Stanley by Dean Witter in 1997 (although the Morgan Stanley name stayed on the door). This retail wealth model dominated until the hedge funds and their distribution began in the late 1990s. However between 2000 to 2008 the industry evolved.. the personal computer and the measurement of performance became much more prevalent, a game changer.
No longer could mutual funds, hedge funds, and stock pickers provide returns without the light of comparison and analysis. Even financial newspapers and magazines vying for investors mind space became subject to criticism. It became all about the data.
As a University of Chicago grad I always knew that the CRSP database (the first database of stock prices) maintained at the University was the true foundation for analysis. Wall Street product sales and newspaper hawking was entertaining but not helpful. Actual return data for all securities and styles brought true understanding. We celebrate the past 10 years which has seen the rise of indexing to the dismay of many seers and brokerage firms.
We are not purists at Aligned Wealth but when ETF indexing goes from 8 billion to 1.5 trillion the past 15 years something important is happening.
We believe the long term data prove (and the wave of indexing shows) that long term portfolios should have significant exposure to upside return through indexing. Dimensional Funds (which we can now offer), is at the forefront and to that end DFA’s founder Eugene Fama, in early October won the Nobel Prize.