Investment Guidance

Is my portfolio diversified?

Often, clients feel they are properly diversified given the number of investments or stocks they own. After completing a thorough portfolio analysis, we often determine that the client has a much “riskier” portfolio than they thought. This comes from the fact that many of the underlying money managers are investing in the same stocks as each other causing significant overlapping (or lack of diversity). We can provide you with an objective and thorough portfolio analysis to determine how much risk you are taking with your money.

How much risk do I need to take with my investments?

The level of income needed from the investment assets will influence the amount of risk necessary for one’s portfolio. In an extreme example, if someone has several million dollars and only needs $20,000 per year, there is little or no need to have any money invested in the stock market. For most retirees, this is not the case and they rely upon their portfolio to produce enough income to meet their expenses (beyond their fixed income). What people often fail to consider is the impact of inflation on their expenses and how much future income will be needed from the portfolio. Our comprehensive cash flow analysis is critical in determining the appropriate investment asset allocation (percentage weighting of stocks and fixed income) to address these concerns.

How can I develop a tax-efficient portfolio?

Where is the trade-off between investing in taxable bonds or tax-free bonds? Are you better off paying capital gain taxes or ordinary income taxes on your investments? How can you avoid paying the Alternative Minimum Tax? Should you consider a Roth IRA conversion? These are all common questions that we address on a daily basis. We can help you structure the most tax-efficient portfolio given your unique circumstances.

The importance of asset allocation and re-balancing

The stock market is made up of several asset classes; Small, Medium and Large companies in the U.S. and abroad. The Callan Table Although the percentage weighting may not be the same, it is important to have some level of exposure in each asset class for optimal diversification.

Since certain segments of the market will perform better than others in a given year, having a disciplined rebalancing approach is imperative. Selling positions that have done well (selling high) and replenishing positions that did poorly to maintain the proper percentage weightings (buying low) helps to minimize risk and enhances returns. Rebalancing is not market timing. Trying to time the market is almost impossible and not recommended. A portfolio should generally be rebalanced every six months to a year. Since rebalancing involves selling positions with possible adverse tax consequences, careful tax planning needs to coincide with this.