,

Thin(k) About Your 401(k) Plan: Reflections on 10 Years as An Advisor – Part 3

It’s probably not surprising that investment strategies are unique just like people. Each investment client is different in what motivates him or her to invest or how he or she feels about risk.  As a result, advisors use both science and art when working with each client to develop an investment strategy and construct a portfolio of diversified investments.

Based on my experience, I begin with two overarching goals for each client:

  1. Invest the client’s money in a globally diversified portfolio. The variety of different asset classes we consider include stock and stock like investments, bond and bond like investment, and real estate, among others.  Additionally, we consider growth and value stocks in companies of all sizes.  In the bond space, we look at bonds issued by governments, municipalities, corporations, and other issuers.
  2. Take the appropriate amount of risk for the client’s circumstances and goals. It is important for an advisor and client to have a full discussion to determine an appropriate risk level using both art and science in the process.

So how much risk is appropriate for each client?  First, there is a science to this decision that is driven primarily by the amount of time until the money will be needed.  For some this might be retirement while for another it might be to buy a house or pay for a wedding.  If there’s more time until the money is needed, the science side of investing says more risk may be appropriate.  Likewise we need to reduce the risk as we get closer to needing the money.

Stock investments generally are more volatile than bond investments.  So, we usually reduce the stock exposure as the date the money is needed approaches.

Second, there is also an art to determining the appropriate risk for a client to take.  This is the softer side of the decision.  How does the client feel about risk? Does he wake up at night worrying about the value of his account?  If so, we might recommend reducing the risk level.  Does she want to put the pedal to the metal and take as much risk as possible?  This could lead us to considering taking more risk than the science side would dictate.

As we craft a client’s investment strategy we continue to be mindful of bringing together money and meaning.  We can accomplish that when we know what each client’s ultimate goal is for his or her money.  That way, we can plot a course to reach that goal and help our clients create a globally diversified investment portfolio, take the appropriate amount of risk and adjust that risk lever as the need to use the money approaches. It’s about realizing that investment is both art and science.

Follow this link to see our core Investment Principles.

For disclosures, please click here.