Investment management is the traditional core of wealth management or financial planning as practiced today. Your Stage 2 Advisor can work with you to
- support you in identifying your mission, vision, values and goals for your business and for your personal life
- develop your Financial Blueprint, incorporating your own return objectives and risk tolerance
- design a portfolio strategy, asset allocation, specific investments and appropriate diversification
- monitor the performance of the recommended portfolio strategists
Asset allocation should lead the conversation
We believe that investment management conversations should always start with a conversation about asset allocation. Research has shown that slightly more than 90% of your investment return will be determined by the allocation you choose for your investments. Approximately 4% of your return is achieved by the actual selection of stocks and bonds. (Source: Brinson, Hood & Beebower, Financial Analysts Journal, 1986; Brinson, Singer & Beebower, Financial Analysts Journal, 1991)
Concentrate on volatility
The next portion of your investment strategy should concentrate on the projected volatility of your portfolio. We believe that managing downside risk is much more important than concentrating on upside potential.
If you have $1,000 and have a 100% gain in your investment, you will now have $2,000. If you take $2,000 and have a 50% reduction in value, you will once again have $1,000. For this reason we believe that concentrating on a strategy that helps minimize downside risk is important for the long-term health of your portfolio.
Core and Satellite Investing
The third area of concentration for investment management should be on developing a core and satellite strategy. The core investments you have typically are stocks and bonds. Here you will concentrate on using cost effective investment vehicles such as index funds or exchange traded funds. We believe that in the core section of managing your investments passive strategies provide more long-term value than active investment management. Passive management strategies attempt to replicate the performance of a specific benchmark, usually an index.
Satellite investment strategies will include those stock sectors where active management can add value. Active management strategies attempt to exceed the performance of a benchmark or index. We believe the satellite sector of your investments should include alternative investments that are designed to provide regular returns no matter what happens in the broad market.
The goal of a core – satellite investment strategy is to provide you with positive inflation adjusted returns that have lower than average volatility.
Selected Tools:
- Exchange Traded Funds
- Index Funds
- REITs
- Alternative Investments for Diversification
The above tools, techniques and resources are listed as examples. Your Stage2 Advisor will work with you to identify the right strategies for you depending on your specific life goals and financial goals.