Portfolio Management with a Broader Perspective

In this fun, informative 3-part video series, Mike McCann explains our approach to portfolio management with a broader perspective: how and why we use asset allocation to create diversified portfolios, update our list of funds quarterly, and review client portfolios monthly to rebalance if needed. Click here if you prefer to read the video transcripts.

Part 1: Creating the Right Mix of Investments

Understanding asset allocation, diversification and individual client risk tolerance (approx. 3 minutes).

Click here to read the transcript for Part 1.

 

Part 2: Fine-Tuning Our List of Funds

Conducting quarterly analysis of investment options (approx. 2 minutes).

Click here to read the transcript for Part 2.

 

Part 3: Adjusting the Sails

Performing monthly client portfolio reviews (approx. 3 minutes).

Click here to read the transcript for Part 3.

Video Transcripts: Portfolio Management with a Broader Perspective

 

Part 1: Creating the Right Mix of Investments – understanding asset allocation, diversification and individual client risk tolerance

I’m Mike McCann, president and founder of Perspective Financial Services. In this 3-part video series, I’m going to lay out in simple terms our firm’s portfolio management process. How and why we create diversified, balanced investment portfolios for our clients that take into account their individual goals and tolerance for risk.

First, let’s talk about creating the right mix of investments.

There’s a lot of financial jargon used in the media, and the terms asset allocation and diversification are especially popular among the financial lexicon. These are important, and distinct, concepts when managing risk in your investment portfolio. So what do they mean?

Asset allocation is deciding how much you want to invest in different asset classes, such as stocks, bonds and cash. Over time, this mix of investments will be your road map as financial markets move.

Different asset classes yield returns at different speeds and have different levels of risk. Therefore, diversification means more than simply dispersing one’s eggs into many baskets. The goal is to balance risk and return within a portfolio of investments.

That means dividing your investment dollars into a variety of asset classes across many industries, geographies and sizes of companies.

Within these broad investment categories, non-traditional asset classes – such as real estate investment trusts (REITs), commodities (such as energy, agriculture or precious metals) and international bonds – can provide further diversification and potentially lower investment risk.

Recurring bumps in the financial markets, often called volatility or corrections, can create anxiety and cause investors to question if a change in their investment strategy is needed.

At Perspective Financial Services, we apply time-tested asset allocation and diversification principles to balance portfolio risk and return. That way fluctuations in the markets have less impact on your investments overall. It’s like having shock-absorbers on your portfolio. The bumps in the road are less noticeable, allowing you to focus on where you’re headed rather than the occasional obstacles that need to be navigated.

While fine-tuning and adjustments are sometimes necessary to account for current events, the fundamental principles of asset allocation and diversification remain the best ways to manage risk.

Creating the appropriate mix of asset classes in your portfolio begins with understanding your feelings about risk and knowing how long you plan to keep your money in the market. An investor with a long time horizon and a high risk tolerance, for example, might have as much as 90 percent of a portfolio in stocks with 10 percent in cash; a conservative investor might hold 20 percent stocks and 80 percent bonds and cash; and a moderate investor would fall somewhere in-between.

Maintaining regular communication with your financial planner and having candid conversations will help you both understand your tolerance for risk and enable you to create an appropriate asset allocation for your investment portfolio.

In parts 2 and 3 of this series, I’ll talk about our firm’s process for monthly and quarterly review and analysis of your investments and how we keep client portfolios in balance.

Portfolio management is just one element of Perspective’s broad range of expertise and services. To learn more, watch our other videos at MoneyAZ.com, or give us a call.

Portfolio Management with a Broader Perspective

Part 2: Fine-Tuning Our List of Funds – conducting quarterly analysis of investment options

I’m Mike McCann, president and founder of Perspective Financial Services. In this 3-part video series, I lay out in simple terms how and why our firm creates diversified, balanced investment portfolios for our clients.

In Part 1, I talked about creating the right mix of investments that takes into account each investor’s unique goals and risk tolerance.

Now, let’s talk about a critical aspect of our firm’s strategic investment process – what goes on behind the scenes.

The Perspective Investment Committee meets every quarter to review and fine-tune the list of funds we use to build balanced client portfolios.

Funds are selected based on several criteria and must pass a series of “cuts” to make the list. Considerations include factors such as cost and the fund manager’s tenure, as well as overall performance and risk vs. return (both of which we compare to peer funds and other benchmarks).

The process begins when Perspective’s Portfolio Administrator conducts preliminary research and narrows the field of funds for consideration to about 30 in each category (from a universe of several thousand choices). Perspective uses two advanced industry software programs to analyze thousands of funds. We also tap into our custodian’s institutional website, to which individual clients do not have access, and obtain additional fund data.

Funds already on our list are reviewed for any changes, such as new management, increases or decreases in returns, or changes in expenses or risk. Funds that no longer meet our strict criteria are removed from the list. Likewise, new funds are discussed and, when appropriate, added to Perspective’s list of approved investments.

With our updated fund list in hand, our team of advisors reviews and updates their client portfolios.

In Part 3 of this video series, I explain our monthly client portfolio review and rebalancing process.

This is just one element of Perspective’s broad range of expertise and services. To learn more, watch our other videos at MoneyAZ.com, or give us a call.

Portfolio Management with a Broader Perspective

Part 3: Adjusting the Sails – performing monthly client portfolio reviews

I’m Mike McCann, president and founder of Perspective Financial Services. In parts 1 and 2 of this video series, I talked about why and how our firm creates diversified, balanced investment portfolios for our clients that take into account their individual goals and tolerance for risk.

In this final installment, I’ll address the importance of monthly portfolio review and occasional rebalancing.

Choosing investments and creating an appropriate mix is only the beginning when it comes to managing a portfolio. The financial markets are changing all the time. This fluctuation in performance alters the values of the different asset classes in a strategically diversified portfolio. Thus, as the wind inevitably will blow, it’s important to adjust the sails of your portfolio from time to time through rebalancing. This involves reviewing the portfolio and buying or selling assets to maintain the original, desired level of asset allocation.

William Arthur Ward said, “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”

How often should you review and rebalance a portfolio to achieve and maintain this efficiency? There is no official rule or industry standard that determines when or how often a rebalance is required. Some advisors believe an annual review is sufficient. Others review quarterly. At Perspective Financial Services, we review client portfolios monthly.

While a rebalance may not always be necessary, we believe consistent, frequent review is a key to long-term success.

Your portfolio’s overall progress should be enough to support and achieve the financial goals you’ve set. The objective is to see steadily increasing value of the portfolio, even if one or more of the investments may have lost value. The proven method of achieving this objective is not to complain about market fluctuations or to hope the markets will calm. It’s to keep an eye on the horizon and adjust the sails when needed.

For the sake of example, let’s say your optimal portfolio requires an even mix of large-cap and international stocks. Now consider a major market shift in which large-cap stocks soar and international stocks drop. This alters the mix of investments in your portfolio, which means it’s time to rebalance to help ensure the optimal asset allocation.

We maintain balance in a number of ways. One approach might be to direct future investment funds into the underrepresented category, international stocks in this example. We also might sell some of the largely appreciated assets and redirect the dollars from those sales to the purchase of undervalued stocks.

This keeps your portfolio in balance, while maximizing growth potential for the money you invest.

Maintaining the appropriate asset allocation is a critical key to staying on track with your long-term financial goals.

Portfolio management is just one element of Perspective’s broad range of expertise and services. To learn more, watch our other videos at MoneyAZ.com, or give us a call.

By |2020-12-02T12:34:44-07:00December 1st, 2020|Investing, Video Blog|

Market Volatility Lessons Learned

Our firm is dedicated to guiding individuals, families and business owners through an uncertain financial landscape. In this short video, Patrick Eng shares some of the lessons we’ve learned through years in helping our clients get through volatile markets – market volatility lessons learned with a broader perspective.

Key take-aways:

  • Market corrections are a normal part of the economic cycle.
  • Understanding your emotional response to volatility, can help you avoid common investor pitfalls.
  • Perspective Financial Services follows a simple process that creates peace of mind and helps take the emotion out of investing.
  • Long-term, consistent investing increases your chances for a positive return.

Full video transcript: Market Volatility Lessons Learned with a Broader Perspective

I’m Patrick Eng, a financial planner with Perspective Financial Services. Our firm is dedicated to guiding individuals, families and business owners through an uncertain financial landscape. In this short video, I’m going to share some of the lessons we’ve learned through years in helping our clients get through volatile markets.

Ups and downs. Bulls and Bears. Stock market volatility. In our business, we call it market corrections. Uneasy investors may call it nauseating.

Call it what you will…  market corrections are a normal part of the economic cycle. How you respond to those corrections is what will impact your success over the long term. By understanding your emotional response to volatility, you can avoid common investor pitfalls.

For some context, let’s start with some historical perspective.

By utilizing a wide range of industry data, DALBAR examines the difference in growth between the average investor and the S&P 500 index. Over the last 20 plus years, the analysis has shown a consistent gap between the two.

Time and again, investor returns trail the overall market benchmarks. Carl Richards attributes this phenomenon to investor behavior, and called it The Behavior Gap, which is also the title of his best-selling book.

Why does this gap exist? Well . . .  it’s pretty easy to get caught up in the emotion of market volatility. When we’re under stress, we tend to make decisions based on emotion rather than reason. It’s not instinctive to think, “Maybe I’ll just wait . . . and see what happens.”

Our brains are hardwired to engage in a Fight or Flight response. This can lead us into any number of investing pitfalls called Behavior Biases. As you can see from this chart created by Cerulli & Associates, the list is a long one.

At Perspective, we develop long-term relationships with our clients, based on two-way communication. Getting to know them on a personal level enables us to know which biases they may lean toward, and then to develop strategies to help them to avoid those pitfalls.

As an example, I’ll briefly explore the top two biases – the recency bias and loss aversion.

An investor with a recency bias may incorrectly conclude that the most recent market move is indicative of what will happen in the future, even though historical data and long-term averages show otherwise.

The study of human psychology reveals our concern of failure weighs far heavier on our minds than the hope of success. Thus, the loss aversion bias is a tendency to make decisions with the goal of avoiding loss, rather than the goal of making a gain.

Now, consider two very powerful human emotions  . . .  greed and fear . . .  and how they impact investment decisions. When stocks are high, people tend to put their money in, hoping for a big gain. When markets drop, both recency and loss aversion biases can lead investors to sell, fearing more loss. They repeatedly buy high, and sell low…   a vicious cycle that creates the Behavior Gap.

How do we close that gap for our clients? By removing emotion from the investment process.

Removing emotion may sound impossible. We are talking about your money and your future, after all. Yet, at Perspective, we follow a simple process that creates peace of mind and helps take the worry out of investing.

We begin by working with you to create a financial plan and investment strategy that takes into account your goals and your personality … a plan with a broad perspective, to help ensure you have what you need today… and in the future. Then we put that plan into action . . . reviewing your investment portfolio often, rebalancing when needed, and communicating with you regularly to keep all the pieces of the plan on track. Finally, when the markets get bumpy, and they always do, our team is quick to respond and adapt, so you don’t have to worry.

Keeping a long-term perspective is key. That broad view makes it much more tolerable to be an investor during occasional volatility.

Here’s some market data that explains why. This chart contains 90 years of data, examining rolling ten-year periods of both consistent and inconsistent investing. The yellow portions indicate money lost, and the orange portions indicate money gained. Look at the first circle . . .  It shows that jumping in and out of the market frequently, say every month, creates a 37 percent probability of losing money. However, if you’re patient and stay invested for years, the probability of losing money drops dramatically. At ten years, the probability of making money is nearly 95 percent.

So, long-term, consistent investing increases your chances for a positive return.

This is just one element of Perspective’s broad range of expertise and services. To learn more, watch our other videos at MoneyAZ.com, or give us a call.

(Market Volatility Lessons Learned with a Broader Perspective)

By |2021-09-21T10:58:27-07:00October 1st, 2020|Investing, Video Blog|

Make Positive Life Changes

Many people dream about suddenly getting a large sum of money. You win the lottery. Perhaps you receive a significant inheritance. But few think about how they will handle the responsibility of their newfound wealth. Lupe Camargo recalls a young woman who came to her for help. The woman had not handled money well in the past and feared she would make poor choices with a recent inheritance. They discussed small steps she could take to make positive life changes that would have lasting impact on her finances and her family’s well-being.

In this moving, five-minute video, Lupe shares the impact this experience had in her own life and career, as well.

 

By |2020-09-29T12:26:51-07:00December 9th, 2019|Financial Planning, Video Blog|

529 Education Savings Accounts and Grandparents

Grandparents often want to assist their grandchild with college. But they don’t know the best ways to help. In this brief video, Jim Mailliard talks about grandparents and 529 education savings accounts.

These investment vehicles are state-sponsored college savings plans. They invest money on behalf of participants, much like mutual funds invest shareholder money. Earnings grow tax-deferred, and withdrawals can be used for a variety of qualified education expenses.

 

By |2020-09-29T14:58:36-07:00November 12th, 2019|College Planning, Video Blog|