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So far Patrick Eng has created 43 blog entries.

Your Investment Policy Statement

Have you ever wondered why we at Perspective Financial Services have annual reviews and discussions about your Investment Policy Statement (IPS)? A well-written, up-to-date IPS is a powerful communication and planning tool, with three key benefits:

  1. It allows you and your advisor to discuss and document your goals, as well as your tolerance for investment risk, to create an effective investment strategy and asset allocation.
  2. It helps clarify how and why your portfolio’s investment mix determines its performance over the long-term. (The chart below offers a good visual regarding why asset allocation is so important.)
  3. It enables you and your advisor to periodically re-visit your goals and strategy, to ensure they remain appropriate to changes in your life and needs.

An Investment Policy Statement (IPS) is a document prepared by an investment manager and their client. It states the goals and the strategy for how to reach those goals through a specific investment mix agreed upon by the client and the investment manager. It’s prevalent within the institutional investment management space and is becoming more so at the individual or retail level. Perspective Financial Services has utilized the IPS for its clients since Mike McCann founded the firm in 2003.

Your Investment Policy StatementCall or email your advisor if you have any thoughts or questions about your IPS. We’re happy to go over it with you any time.

 

By |2021-12-02T14:05:37-07:00January 3rd, 2022|Financial Planning, Investing|

Aligning Investments and Values

aligning investments and valuesEven before the 1971 founding of Pax World fund – the first socially responsible mutual fund in the United States – many people have wanted to make a difference with their dollars. The question remains, is there a practical way of aligning investments and values?

In the early days of socially-responsible investing (SRI), most of the strategies revolved around excluding “sin stocks,” primarily those associated with alcohol, tobacco, and gambling. The list of exclusionary stocks grew in the 1980s, adding oil and gas companies in the wake of disasters like India’s Union Carbide gas leak and the Exxon Valdez oil spill.

SRI has since evolved into an inclusive investment strategy with active management and deep research into companies that claim to be good corporate citizens. The emphasis is now on investing in companies with high marks for environmental issues, societal responsibility, and corporate governance (ESG).

The idea of influencing positive change in society through our investments is a noble pursuit. The premise of developing an ESG framework to analyze how a company measures up against its peers can provide a more holistic understanding of a company to complement its financial data.

There are obstacles, however, to obtaining good ESG data. Many companies are reluctant to add more data to their already long list of legally-required reporting and disclosures. Another problem is “greenwashing” – using public relations and advertising tactics to convey a more environmentally-friendly and socially-conscious image than is accurate. Plus, a standardized ESG rating system doesn’t exist; environmental issues, societal responsibility, and corporate governance have different weightings and levels of importance in each industry and to each investment analyst.

Historically, well-run companies with a holistic operational approach have always been a good long-term investment. As more companies begin to disclose accurate ESG metrics that can be more-rigorously applied to the investment process, companies with good ESG scores will ultimately attract investment dollars and prosper.

By |2021-11-09T08:51:56-07:00December 6th, 2021|Current Affairs, Investing|

Win the Retirement Race

Eng-WEBA 401k account through your employer is one of the best tools to use for retirement savings. It’s an investment account that allows your money to grow tax-deferred or, in the case of a Roth 401k, tax-free. It can help you win the retirement race.

These retirement savings accounts make it very simple to put your saving and investing on auto pilot. It even gives you options to rebalance your investment portfolio on a regular basis.

If you’re just starting out and have less than $50,000 in your 401k, a target date retirement fund is a simple option. These funds “target” your retirement year based on your age and invest accordingly; the investment vehicle provides a diversified portfolio all-in-one fund using a variety of stocks and bonds. They’re professionally managed and therefore require very little monitoring.

As your account balance grows, you may consider adding more funds to the mix.

How many years before retirement?

Your time horizon calculates how long you will be investing and when you want to retire and begin withdrawing money from your account. It’s a key factor in how and where you invest. In general, the longer amount of time you have, the more aggressive you can afford to be and the more stock market volatility you can withstand.

Many young people believe they need to be “safe and conservative” with their retirement accounts. Really, the opposite is true. Investors in their 20s and 30s can afford to take some risk with an account they will not use for 30 or 40 years.

How comfortable are you with risk and stock market volatility?

Even if you’re young and have a long time-horizon, you may find watching your retirement account bounce up and down to be unnerving. In that case, a more conservative strategy makes sense. You can add bonds to your investment mix to help bring income and stability to your portfolio.

Either way, staying invested in the market – rather than jumping in and out, and trying to time the markets – is a key to long-term success. Think of investing is a marathon, not a sprint, if you want to win the retirement race. Even after you retire, keeping investments in the stock market will help your money continue to grow and outpace inflation.

Win the Retirement Race

 

By |2021-10-12T10:39:00-07:00October 12th, 2021|Retirement, Taxes|

Compound Interest and Habits

Eng-WEBHabits – both good and bad – are something we all have. They’re part of our everyday routines, something we often do without any thought. Yet, we can all benefit by giving our habits more thought. As a financial planner, I love the idea that there’s a correlation between compound interest and habits.

“Habits are the compound interest of self-improvement,” wrote James Clear in his best-selling book, Atomic Habits*.

This idea really resonates with me.

I understand the benefits  of how investments compound interest (we essentially earn interest on our interest). The opposite is also true. If we get into debt and owe interest on the interest that is owed, that negative compounding is a detriment.

Good and bad habits work the same way. Years ago, I was in the habit of eating a bag of chips every day at lunch. I love potato chips, but eating them daily wasn’t a great habit. A good friend knew I was trying to lose some weight, and he suggested I substitute the chips with a piece of fruit. It was a small change, but a significant one for me.

The success that came with that small adjustment led me to rethink my daily soda with lunch, as well. Each small change moved me closer to being the healthier person I wanted to become.

“Success is the product of daily habits, not once-in-a-lifetime transformations.” — James Clear

Consistency

Once you decide to make a change, how do you make it stick? Consistency. Making the change automatic and trying not to miss more than two times in a row are two things that can help.

Let’s use a savings example. I have a friend who had never invested in the stock market. When she began a new job years ago that offered a 401K plan, I encouraged her to have automatic contributions withdrawn from her paychecks. Fast forward about 20 years, and she’d accumulated more than $250,000. Even though she did take some money out of the account along the way, she had still managed to save a nice sum of money for retirement.

We’re all human. We all get off track from time to time. Sometimes we miss deadlines, avoid workouts, or skip saving contributions. Give yourself room to be human. Know that you will have setbacks, and know that you can rebound. Commit to getting back at it as soon as possible.

The biggest rewards come when you have been consistent over long periods of time and your habits compound.

*When you  purchase books from Bookshop.org, a portion of the proceeds supports the independent bookstores and authors listed on the site.
By |2021-08-16T12:43:20-07:00August 9th, 2021|Financial Planning|

Learning to Live with Uncertainty

Eng-WEBA good friend and client of mine used to live in Somalia. She recently shared a great story with me about a trip she took years ago with her baby daughter. It’s a fabulous lesson about learning to live with uncertainty.

They had boarded a flight in Somalia, and all the seats were already taken. Many more passengers were standing in the aisle. They were instructed to deplane and line up on the tarmac. Then, they were told the seats would be decided by a foot race.

Passengers had to run, and those who did not run fast enough were not allowed back on the plane. My client ran the race with her daughter on her back!

We all live with uncertainty. Every day, things happen that are beyond our control. This story illustrates one of the more extreme situations that most of us will never have to experience. In the United States, we have grown accustomed to getting a seat on the airplane if we book a flight. We generally have a car available to us if we reserve a rental. We enjoy a high degree of certainty that the meal we order at a restaurant will arrive the way we like it.

All this suits me. I’m a person who loves structure and routine. Learning to live with uncertainty isn’t something that comes naturally to me.

Yet, out of necessity, I have learned to embrace change and develop the ability to adapt. It’s inherent in the career I chose. Dealing with financial markets, as well as an ever-changing economic and political landscape, has forced me to learn to live with uncertainty.

Experience is a great teacher. The more experiences we have in life, the more comfortable we can become with uncertainty.

My friend has lived through many of the ups and downs of life and the financial markets. As a client of 20 years, she has adapted well, and it has been rewarding for her and her family. Just like when she adapted to that situation in Somalia and was awarded a seat on the airplane.

 

By |2021-04-15T11:49:07-07:00April 19th, 2021|Client Stories, Current Affairs, Financial Planning|