When we sit down with you to develop your plan, we look at your entire financial picture. We become familiar with every facet of your financial situation so that we can identify and examine each financial planning area that is relevant to you. We run the numbers and analyze your situation using our software tools, but more importantly, our experience, knowledge and intuition. Our financial planning process consists of three face-to-face meetings. The first is an introductory, get acquainted session before you sign up as a client. The second, a collaborative session at our office, is a walk through and discussion of the key assumptions and inputs to your plan. Together, we develop your goals and ensure that the assumptions are reasonable and the inputs accurate. At the third meeting, we present you with our analysis and recommendations. After the third meeting, we continue to work with you on follow-ups via email and phone calls to ensure that you are comfortable with your plan and take the necessary steps to implement it.
When it comes to managing your investment portfolio, we have a few core principles:
1. Strategic Asset Allocation with a Tactical Overlay
We typically set a long term target allocation for our clients and stay close to it by rebalancing periodically (strategic asset allocation). At times, we allow the actual allocation to deviate more significantly from the target allocation for valuation, momentum and other reasons (tactical overlay). We do not believe in a buy-and-hold-forever approach. Rather, we make tactical changes when we believe it makes sense to do so. We tend to be tactical when we believe the markets are trading at extremes. In a wide range of "normal" markets, we simply follow our strategic path.
We spread our clients' money across a number of disparate asset classes. We select asset classes based on their expected return and risk and how we expect them to interact with each other (called "correlation"). In times of market stress, many asset classes tend to track each other, reducing the diversification benefit to the portfolio. In such times, cash and alternative asset classes can help.
3. Mutual funds and ETFs
We build portfolios with mutual funds and low-cost, tax-efficient, liquid ETFs (exchange-traded funds). We seldom use individual stocks and bonds because we believe it is difficult for most investors -- including advisors -- to select and trade individual stocks and bonds gainfully over time. To the extent we believe it is possible to outdo the market, we leave that task to a handful of carefully selected active mutual fund managers.
4. Cost Effective
To keep costs low, we adopt a core and satellite approach. We build the core with largely passive, low-cost ETFs and indexed mutual funds and surround it with a satellite portfolio consisting of ETFs and actively-managed mutual funds that typically cost more than the core ETFs. The role of the satellite portfolio is to improve returns and/or lower risk.