Where's Your Investment Plan?


One of the valuable aspects of working with an investment advisor is often overlooked and ignored by clients. It's basic and straightforward relative to everything we do, but it has just as much impact and importance as some of the complex decisions that we address.

Consider this...

You'd be surprised how often a client comes to the table with an assumed net worth in their mind and how often that number unintentionally excludes meaningful chunks of their wealth. They'll almost always call up after things have been moving with the news that they found a stock certificate in a shoe box or a CD statement hidden in the bottom of their file drawer. Even the most sophisticated investors can accumulate accounts and stocks in a seemingly random fashion.

OK, so what's the solution? An Investment Plan.

And that is...? It's a documented set of rules for investing your new deposits, taking withdrawals, building your initial allocation, rebalancing as the markets move, and harvesting tax losses. It's an important part of every client's initial phase with our firm (as it is with many advisors). And, it serves as the foundation for many decisions that come up throughout the life of our relationship together.

Let's look at some specifics:

An obvious starting point is identifying your target allocation at the highest level. In this example, you can clearly see some basic characteristics of the portfolio and in what relative proportions they'll appear. This serves as the north star for future deposits, withdrawals, and adjustments. All will be based on getting the portfolio back as close as possible to these target percentages.

Next up is a more detailed look at the precise thresholds that will govern when it's time to make adjustments. The upper and lower limits for each investment are intended to capture the upside after returns have been good, double-down after returns have been poor, and keep the overall balance among the pieces of the puzzle in line. They're also not too restrictive to avoid excessive trading.

And the last piece we'll examine is a sampling of portfolio risk characteristics. This particular example offers a look back at some of the worst times in the portfolio's recent history (since the '70s) so that you can accurately put in context the potential downside.

So, when a client asks where we'll place a large deposit that they intend to make, the answer depends on where their allocation stands relative to their investment plan. Anything that is underweighted gets a boost from the new funds. Likewise, if a withdrawal comes up, we'll start with anything that is overweighted in comparison to its target percentage. Most importantly, the daily fluctuations of the markets fade into the background. Their only relevance is in how frequently we might need to rebalance the portfolio back within its thresholds.

This isn't a complete list of investment plan features, but a highlight of the basics. And all of the benefits are thanks to having spent time documenting the customized plan in the early stages. Future decisions are hopefully met with confidence. Anxiety is a frequently mentioned emotion when discussing life before an investment plan and also the easiest to eliminate thereafter.