Will you even remember this occurred?

Late last year, most global stock markets dropped sharply. On Christmas Eve, the US markets had their worst Christmas Eve ever.*

Since Christmas, 2018, worldwide stock markets have risen dramatically and have recouped a large portion of the late 2018 decline.

In 66 trading days leading up to Christmas Eve, the S&P 500 declined 19.8%. However, in the 33 trading days December 26th to February 13, 2019, the S&P 500 has increased 16.6%.**

The chart below represents the above trading period, from 09/20/2018 to 02/13/2019.***

 While we believe that holding a broadly diversified global portfolio is in the best interest for most long term investors, I’m using the S&P 500 only for the illustrative purposes in this blog post, even though the S&P 500 consists of only US based large companies.

Global stock markets have increased significantly over the past 7 weeks despite many concerns about trade issues, the US government shutdown and worries about slowing economies in the US and globally.

This is a good reminder that even though you and others may be worried, and rightfully so, it does not mean that the stock market has to decline at that same time you have worries. The past few months are a terrific example of why we often remind you to focus on the long term, and not on the short term.

We believe it is nearly impossible to consistently and accurately time the stock market, to know when to get out and then when to get back in. You have to be right twice. To be a profitable market timer, you have to be able to do that over and over, and be correct to time the high and low points. This is not a game we advise you to play.

Though it can be difficult to handle markets when they decline quickly and sharply, we recommend that you adhere to your personal stock allocation plan, and not react to short term fluctuations and volatility.

Do you remember the decline in stocks which occurred in early 2016? Do you remember what caused this….3 short years ago? I assume that most of you do not remember that decline.

Just to refresh your memory, it was because of worries about China’s economy in January of that year. By early February, 2016, worldwide stocks began to climb again.

Three to five years from now, most investors will likely not clearly remember the late 2018 drop in stocks. It may have been worrisome for you to experience, as most major declines are scary to experience. But over time, the markets generally recover and go higher. And the memory of these declines fade.

But if your focus is on your long term future and long term financial plan, you will realize that declines like this are normal.

If you are in retirement, this is why we discuss with you the amount of fixed income savings that you have, and how long that can last you. We refer to this as your “Foundation.” For example, assume you are withdrawing around $80,000 annually from a $2 million portfolio. If you have $1 million of that portfolio in fixed income investments (50%), then you have over 12 years of annual withdrawals which are not subject to the volatility of the stock market….and that is without even including any interest on the fixed income investments. So you would really have 13 or more years of safe funds to rely on for your annual living.

If you think like this, you will hopefully be better able to tolerate the down periods in the financial markets, as you would know that you don’t actually need the stock portion of your savings for many, many years, for at least a decade in the example above. Thus, while the decline of 2018 was not pleasant for anyone, with this type of framework, you would realize that it is not directly impacting your current ability to live or your future standard of living.

It is this type of perspective and planning that we strive to develop with you, based on your age, income, expenses and savings.

We cannot predict when future major declines will occur, but we know there will be major declines in the future. On average, a major decline of around 20% or more occurs at least once every 5 years.

We want to work with you to develop a financial plan that begins to resolve your financial issues and concerns, such as how much money you may need to retire. And then we want to provide you with a plan and solution to live through your retirement years with the goal of reducing your stress that is related to financial issues.

We cannot eliminate down periods of the stock market. But we can work with you so you can strive to better handle down periods.

Let’s Talk.

*“The Stock Market just booked its ugliest Christmas Eve plunge-Ever”MarketWatch.com, by Mark Decambre, 12/24/2018

**“Stock Market Counterfactuals”awealthofcommonsense.com, by Ben Carlson, 2/08/2019

***S&P 500 ChartMorningstar.com

Realistic expectations

Helping you to develop realistic expectations can be one of the major benefits of working with a financial advisor.

We can help you to determine what you can realistically expect to live off of during your retirement or how much is a realistic amount that you need to save for a financial goal, such as college funding or your retirement.

We realistically expect that the future is uncertain. We know that finances can be confusing and difficult to understand. It is realistic for you to ask us in assisting with all the uncertainty and complexity and provide you with realistic solutions.

You are not being realistic if you plan to withdraw 7-10% annually of your investments during your retirement years. Academic research guides us to advise you to a more realistic annual withdrawal percentage, such as 4-5%. If you have a $2 million dollar portfolio, you should be able to comfortably withdraw $80,000 per year with a diversified and balanced portfolio and not run out of money.

Realistic expectations should include being prepared for bad periods of the stock market. We remind clients that the stock market has declined around 20% or more, once every 5 years, on average, since World War II. If you are not mentally prepared for this type of decline, which can occur at any time, even when you least expect it, you may not have realistic expectations.

You can realistically expect us to provide you advice that is in your best interest, even if it’s not in our best interest. We have a legal obligation to act as a fiduciary, to provide advice that is in your best interest. It is important that you understand that other types of financial professionals may not have to adhere to this higher standard of advice. Most national brokers and financial consultants working at a bank or insurance company do not have to act in your best interest.

We believe that in the long run, having a globally diversified portfolio will provide you with greater expected future returns than holding a portfolio of just large US stocks, such as the S & P 500. However, we want you to realistically expect that there may be periods or years when a US based portfolio will outperform a globally diversified portfolio.

We believe that in the long run, owning a globally diversified portfolio, with a tilt towards small companies and value companies, both in the US and Internationally, will provide you with greater expected returns. However, we want you to realistically expectthat there may be periods or years when these small and value “premiums” do not appear.

We encourage you to ask us questions and for guidance about a wide range of financial areas, so you can strive to be more financially realistic and make good decisions.

We think the more realistic that you are, the better long-term investor that you will be. And hopefully, happier, more secure and more successful.

Let’s Talk

What do you need?

You may want investment advice. Or you may have other concerns or issues.

You may have various investments that are not coordinated and lack a plan. We can help you put these pieces of the puzzle together. We can coordinate and help you see the big picture. We can strive to provide you with clarity and perspective.

Planning for a successful retirement can be a daunting task. We can guide you through this complexity. Together, we can work towards increasing your chances of meeting your financial and retirement goals, as well as trying to reduce your financially related stress.

We listen. We are empathetic. We have expertise and experience.

You may be uncertain about the future. We can guide you through the maze of options, such as how to fund college costs or the various retirement savings and 401(k) plan choices. We will strive to increase your confidence and help you to worry less.

We have clients with all kinds of needs. Everyone faces different issues. We can work with you to identify these problems or issues, then develop solutions. We can then guide you with ongoing advice, throughout your life.

You may have recently lost a spouse. You may not be experienced in dealing with financial matters. We will listen to you and help you to clarify your concerns. We will then patiently guide you, with the goal of reducing your worries and providing you with excellent advice that is always in your best interest.

We want to help you make progress and strive to resolve your financial worries.

We want to build trusting relationships.

It all starts with a conversation.

What do you need to talk about? Let us know.

Investing with a Shutdown and Uncertainty

The current partial Federal government shutdown that now extends over 30 days is another example of the type of uncertainty that investors must deal with.

Investors never know what kind of news is coming next, as no one can predict the future.

Investors sometimes say they will invest more in stocks or get into the market when there is “less uncertainty.” When will that be?

Is there ever a period where there is no uncertainty? We don’t think so.

There may be times when the markets are not as volatile, where there are not wild day-to-day swings…but that does not mean that the markets are more “certain.”

When can you really be certain about the near-term direction of the stock market? We don’t think that you can truly be certain about the short-term direction of the stock market, whether its US or global stocks.

If investing in stocks is uncertain in the short term, say days, weeks, months or even a few years, then you must develop a way to handle the uncertainty and volatility that comes with investing in stocks.

We think the best way to cope with the uncertainty in stock investing is to develop what we refer to as a rationally optimistic and long-term mindset.

  • You should strive to focus on the long term and not on day to day news events.
  • You should not focus on whatever the current issues or crisis that the financial markets are dealing with and not try to analyze what the ramifications are or could be.
  • You should focus on what you can control, such as the percentage of your assets that are allocated to stocks, not on things which you cannot control.
  • You should remember that in the long term, stocks have trended higher, not lower. Stocks have had more up years than down years. This leads us to be rationally optimistic for the long-term.
  • You should talk with a financial advisor who could help you deal with the uncertainty that is inherent in investing.

While we cannot predict when the government shutdown will end or what the S & P 500 Index will be in 6 weeks, 6 months or 6 years, we can strive to help you deal with the uncertainty that comes with investing.

Talk to us. It could be beneficial to you.

The Impact of an Investment Icon

Jack Bogle may have had more impact on investing by individuals than any other person of our generation.

Bogle, the founder of the Vanguard Group, died Wednesday at the age of 89.

His impact was in the significant reduction of mutual fund expenses and other fees paid by investors, as well as being one of the moving forces in the acceptance of index investing.

For many investors today, primarily younger ones, the concept of fee-only investing and no load mutual funds may seem normal. For example, our firm only recommends investments that do not come with any sales charges, either when you buy or sell the investments.

However, if you go back a decade or two, and prior to that, mutual funds that were sold by major brokerage firms and most other financial institutions were sold with up-front sales charges that may have ranged from 5-7% of your initial investment, and some may even had back end loads, which would charge an additional fee if you didn’t hold the mutual fund for a long enough period of time.

Bogle was an innovator, or today, would be considered a disruptor. As the Wall Street Journal stated, Vanguard was “continually cutting the costs of investing… Vanguard’s asset weighted average fee has fallen in the past 20 years to .10% from .27%, according to Morningstar Inc. Many traditional funds still demand 1% or more.” **

We are strong believers in the general concepts which Bogle advocated. We recommend mutual funds and ETFs which have internal costs which are far below industry averages, yet still have solid investment performance over time. There is no question that the competitive presence of Vanguard is reflective in the management fees of the investments we recommend.

Bogle strongly believed in index investing, where an investor would own an entire market sector, such as the S&P 500, rather than buying a mutual fund which has a money manager that would try to pick and choose selected stocks based on the manager’s forecasts (active investing). He believed that a mutual fund which tracks an index, at a much lower cost than an actively managed fund, would be to most investors advantage, over time. He has been proven correct, as years of mutual fund data has shown that index or passively managed funds outperform active funds over time for nearly all US and International asset classes.***

While we do not generally recommend that all stock investments should strictly track an index, our use of asset class funds is a variation of the concept which Bogle is credited with introducing and making widely available. We feel that the type of investments that we recommend, asset class funds that don’t strictly adhere to an index and some which add tilts toward various investment factors, such as value and smaller companies, are taking his concept to the next level.

John Bogle was an extremely influential financial executive, who was patient and disciplined in his beliefs, which investors throughout the US have benefited from, even if they do not invest with Vanguard.

Thanks for your contributions to the investment industry John. You will be remembered and missed.

** “Vanguard Founder Dies at 89,” Wall Street Journal, print edition, page 1, January 17, 2019.

***See blog posts for SPIVA content, 10 Things You Should Know and 10 (or more) Things You Should Know.

The Power of Diversification

Since my junior year in high school, for nearly 40 years, I have read the Wall Street Journal almost every day it has been published.

For almost a month, I have carried an article from the Wall Street Journal around with me, because I wanted to share the story in our blog.  The headline read…. “GE….Burned Out..This is the story of how General Electric lost power.“**

When I read this article the weekend it was published, Saturday, December 15th, I knew I had to write about it.  The story of GE and its stunning demise was too important.   The article covered part or all of 8 pages. This was the longest article I can remember seeing in the Journal.

In August 2000GE was the most valuable company in the US, with a market value of nearly $600 billion. For perspective, Apple is worth $721 billion today.

While GE was worth $600 billion 19 years ago, today it is worth only $76 billion, almost one-tenth of its prior peak. The stock price has gone from a top of nearly $58 per share to a low of $6.61 and has recently climbed back to $8.76. GE has also cut their dividend dramatically, from 96 cents per share in 2017 to its current 1 penny per quarter, starting in December 2018.

The WSJ article highlights some of the errors and decisions which led to this dramatic downfall. GE was widely revered for its outstanding leadership and top executives, yet has suffered from many poor decisions and bad timing. If you are interested in management and business, I highly recommend reading this article. It is a real eye opener.

As I read the stunning details of GE’s demise and the many serious issues which they still face today, I thought about the lessons from the perspective of our financial advisory practice and some of our key investment philosophies.

We are strong advocates of broad diversification, across companies, sectors and geography. We generally do not believe in owning individual stocks as part of an investor’s core portfolio.  Declines as occurred in GE’s stock has occurred at other companies, and will happen to others in the future. This is why we advocate our philosophy of diversification.

One-time very successful companies can become stock market failures. And vice versa. There is no way to reliably predict which companies and stocks will be the most and least successful over the long term…say 5, 10, 20 years, let alone over months or a few years.

Sure, there are stocks which continue to do well and look like great investments, in hindsight. We feel that most investors would be better off owning broadly diversified funds, rather than trying to pick 10-20 stocks and concentrate their portfolio. The risk of a few stocks blowing up, such as what occurred at GE, is too great a financial risk for most people.

We must acknowledge that one of the downsides to our philosophy of broad diversification and asset class investing is that some of the funds that we recommend for our clients have owned GE in the past and a number of funds still own very small amounts of GE today.

This is the nature of asset class investing, which means that a mutual fund will own hundreds or thousands of stocks, based on the purpose or objective of that fund. The key is that rather than a stock like GE being 5 or 10 percent of your portfolio, a fund or ETF today may hold far less than 1% of GE in its portfolio. In this manner, your upside and downside of any one stock is limited.

While the WSJ’s reporting of GE’s past problems and future challenges is insightful, it should not be guidance for your investment decisions. The WSJ nor other financial media or Wall Street prognosticators did not predict the huge decline of GE in 2000. We cannot predict its future success or failure.

However, we feel that our strategy of broad diversification will minimize the impact of a single stock having a major negative impact on your financial future. We hope that brings good things to your life!


**Cite: “GE, Burned Out,” Wall Street Journal, print edition, page B1, December 15, 2018.(To view and have access to the article online, you must subscribe to WSJ or already have a WSJ account.)

Disclosure: GE stock is held in various funds that our clients may own. For illustrative purposes, as of 11/30/2018, GE is 0.105% of DFA US Core Equity 2 Portfolio, 0.281% of DFA US Large Company Portfolio, and 0.231% of DFA US Large Cap Value III. GE is held in additional mutual funds as well.

New Year’s Resolution for 2019 and every year

With the volatility that US and worldwide stock markets experienced during 2018, it is important to maintain your long-term asset allocation plan between stocks and fixed income.

Maintaining your asset allocation, and regularly rebalancing your portfolio, should be an annual New Year’s resolution, whether markets are going up or going down.

To maintain your asset allocation means investors should be buying stocks when markets have decreased, and incrementally selling stocks after significant market increases.

As stock markets went down in 2018, we have reviewed, and will continue to review, our clients’ portfolios to buy stocks, to rebalance their portfolios back to their planned asset allocation.

When stocks are declining, buying stocks may seem difficult. You cannot know if they will continue to fall further. Stocks may have dropped but we may still be in the midst of the decline. This is where discipline and having a long-term perspective can be beneficial.

By buying stocks to rebalance after a significant market drop, you are following the buy low, sell high strategy. This is where we as your advisor can add value to your long-term financial progress.

For example, if an investor had a $2 million portfolio that was allocated 60% to stocks and 40% to fixed income, their portfolio would be $1.2 million in stocks and $800,000 in fixed income.

If the stock portion of this hypothetical example declined 15%, then the stocks would be $1,020,000 and the fixed income allocation would still be $800,000, assuming no fixed income change.

The portfolio would now be worth a total of $1,820,000, so a 60% target allocation to stocks should be $1,092,000. To rebalance the portfolio would require selling $72,000 of fixed income and purchasing $72,000 of stocks to maintain the intended 60/40 asset allocation goal developed as part of the planning process.

If you are a client, we have designed a financial plan with you, which we call an Investment Policy Statement (IPS).

If you are not a client, do you have a financial plan? If not, maybe you should contact us and discuss why this is so important.

It’s important to remember that bear markets and down periods are a feature of the stock market. If we were to look back at every previous market decline, some investors would think it is an opportunity and other investors thought the light at the end of the tunnel was a truck coming the other way.

In each past instance, the truck coming the other way wasn’t the outcome. It’s likely that this is not the case now either. In other words, every past decline looks like an opportunity; every current decline feels like risk.


Resolve to rebalance as needed, or work with an advisor who does this for you.

Resolve to think long-term. Resolve to adhere to your long-term investment plan.

Reflections on 2018

Another week in the financial markets. Another week of roller coaster ups and downs.

Last Monday, Christmas Eve, the markets were down based on speculation and fears because the Treasury Secretary called 6 top US bank CEOs on Sunday to confirm there was adequate liquidity in the financial markets. However, there was no previous worry about financial liquidity. This was another day in a brutal December and fourth quarter for most US and International asset classes.

Tuesday was Christmas. Peace and quiet. Calm. No financial market trading in the US.

Wednesday the US stock market roared back with the largest percentage gain of 2018, as the S&P 500 rose almost 5%. This was the largest point gain in the history of the S&P 500 and DJIA indexes, because they are at much higher point levels than they were in the past.*** The DJIA surged more than 1,086 points, for its first ever daily gain of more than 1,000 points.****

Some thoughts as 2018 draws to a close.

  • It is difficult to explain many of the moves of the financial markets in 2018, particularly since some of them are inconsistent with each other.
    • Maybe that is the key, that investor psychology, not facts or logic, can literally change on a dime, or within a few days. For example….
      • the price of oil has dropped by 40% since early October.
      • the Federal Reserve has increased short-term interest rates during 2018, yet the 10-year Treasury Note has declined from 3.23% on November 8th to around 2.75% today.
    • Both items are positive for the economy (except for oil companies), as oil and gasoline is cheaper, as are car, mortgage and corporate borrowings.
  • There was not significant, new financial data that should have caused the huge market increase on December 26th. It was pretty clear that holiday sales were strong prior to Christmas, so a few retail sales announcements on Wednesday would not seem to be the source of the rise in 499 of 500 S&P 500 stocks.
    • Was this a change in investor psychology? Will it be short-lived or the start of a market rebound? We wish we had a crystal ball to know.
  • The huge rebound on Wednesday was a good example for our long-term belief of staying in the stock market and adhering to your financial plan. This is why we do not think an investor can successfully and repeatedly, over a long period of time, be able to predict when to get out of the market and when to get back in.
  • Stocks appear to track the growth of earnings and the expectations of future earnings, especially over the long term. In the short term, when a company announces an increase in actual or future expected earnings, the stock usually rises. If they announce lower actual or future expected earnings, the stock generally falls. This makes sense.
  • Despite economic, political, technological and other changes, corporate earnings in the US and worldwide have grown significantly over long periods of time. This is why we consider ourselves to be “rational optimists.”
    • For example, here are the year ended earnings of the S&P 500 for selected years:*****
      • 1990: $40.20
      • 2000: $72.42
      • 2001: $35.22
      • 2008: $17.84
      • 2010: $88.95
      • 2015: $92.21
      • 2017: $112.34
      • 2018: $150-160 (projected for the year 2018)
      • 2019: expected to be higher than 2018
    • Companies strive to be resilient. The ones that succeed figure out ways to adapt, change and grow their earnings.
    • It is hard to identify which ones will succeed, in advance and for decades into the future. It is also hard to predict which regions or countries, or stock markets, will outperform another, which is why we recommend investing in a globally diversified portfolio of companies.
  • There is talk of a recession. And there is talk of a slowing economy or slower growth. 
    • Let’s define the terms properly, as there are huge differences. According to businessdictionary.com, a recession is a period of general economic decline.
      • This is further defined as a contraction in GDP (economic output) for six months (two consecutive quarters) or longer. Recessions generally do not last longer than one year and are considered normal in a capitalist economy, such as the US and much of the world.
    • Why is this important? As many economists are predicting and discussing slower economic growth, few are predicting a near-term recession, or contracting economy in the next year.
    • If the US economy slows from 3% growth to 2%- 2.5% growth, that is still a growing economy, just growing at a slower rate. But that is not a recession.
  • We do not see signs of impending economic doom, such as preceded the housing bubble in 2008 and the subsequent stock market crash during that time period. While stocks in the US may have been overvalued by some measures earlier in 2018, they are much cheaper now. And stocks overseas are even cheaper on a valuation basis than broad US markets.

While 2018 has been a challenging year for most investors, we still believe in the fundamental investment principles which we have recommended and adhered to since we founded our firm over 15 years ago.

We still believe in….

  • Globally diversified portfolios of asset class mutual funds
  • Minimizing your costs
  • Investing in asset classes with greater expected returns than the S&P 500 over the long term, such as small value, International and Emerging Markets
  • Preparing an individual Investment Policy Statement, which allocates your portfolio between stocks and fixed income, based on your needs, goals, time frame and risk tolerance.

We are available to meet and talk to you when you have any questions or concerns. We know that declines in financial markets can be difficult for some to deal with.

Regardless of what happens in the world and in the financial markets, we will be here for you. We will be writing these posts weekly, to help you try to understand what is going on in the economic and financial world, so you can continue to work towards your financial goals.


We wish you and your family a Happy and Healthy 2019!


*****multpl.com, “S&P Earnings by Year“, Note that the companies in the S&P 500 change frequently, so the earnings in these figures are from different companies at different times.




Is the Fed acting like Grinch?

The Federal Reserve on Wednesday again increased short term interest rates by .25%, which is the fourth such increase of 2018.

This move was widely anticipated (and telegraphed by the Fed) for weeks, but recent financial circumstances made the action surprising to many analysts.

We always stress that investors need to be focused on the long-term. At times, writing this blog weekly feels like we are focusing on the short term. However, we feel that it is important to share our thoughts and analysis about current market news and actions.

So while we want to wish you Happy Holidays, Merry Christmas and a Happy New Year….the financial markets are not filling investors stockings with good cheer.

Global stock markets have declined dramatically during the fourth quarter, affecting nearly all asset classes, in varying amounts.

The price of oil has dropped over 35% since early October, due to concerns of slowing economic activity and supply increases, particularly in the US.

What do we think? Does the Fed action make sense? What happens from here?

We have often explained that the Federal Reserve has a dual mandate, to encourage full employment and price stability, which means to maintain inflation around 2%.

Unemployment in the US is at all-time lows and inflation is at or below 2%, and not likely to increase soon given the large decrease in oil prices. Based on the current data, it may be hard to understand why the Fed increased short term interest rates on Wednesday.

The US stock market reacted negatively after the Fed’s written announcement and press conference, as the Chair explained that Board members still predict two .25% rate increases in 2019. However, those are predictions and they are subject to change, based on future economic conditions. The currently projected two increases for 2019 is reduced from their internal projections earlier this year for three 2019 increases.

The Fed acts independently and we hope that their actions do not cause the economy to slow too much. The Fed is supposed to focus on their dual directives, and not react to the stock market or political pressures, which they are clearly not doing. Maybe the Fed sees the US economy as stronger than the stock market is fearing. The stock market can be very volatile and investor psychology can change quite quickly, as it has a number of times during 2018.

Short and longer term interest rates have nearly come together, as of Wednesday afternoon. This is called a flat yield curve. The 2-year US Treasury note yield is 2.68%, while the 10 year US Treasury yield is now 2.77%, declining from 3.24% as recently as November 8th.

The implications of these interest rate moves is that longer term borrowing is now cheaper than it was a month ago, which should be better for the housing and vehicle sectors, than 4-6 weeks ago.

In November, the stock market declined in response to the sharp rise in the 10-year yield to above 3.2%, but the stock market has not rebounded as longer term interest rates have dropped, due to slowing economic growth concerns.

We do not know what the stock market will do in the near future. We know that enduring losses is not easy. We wish we had a crystal ball, but we don’t.

We don’t know exactly what someone like Warren Buffett is doing right now. However, based on his past actions and speeches, we would assume that he and Berkshire Hathaway would be buyers, not sellers. He has often said it is wise to be “fearful when others are greedy and greedy when others are fearful.” In other words, when others are fearful and stock prices have dropped, it may represent a good time to buy, or at least, not a time to sell.

We feel that to reap the long-term benefits of investing in a globally diversified stock market portfolio requires patience and discipline. This is one of those times, where patience and discipline are encouraged. We feel that in the long term you will be rewarded.

We are here for you, if you want to talk to us, to review your portfolio or discuss your concerns.

Happy Holidays!

Why we recommend an Investment Plan

As a baker or chef, you would use a recipe.

As a football coach, you would develop a game plan.

As investment advisors, we believe all investors should use a written investment plan.

Having a written investment plan, which we call an “Investment Policy Statement” (IPS), may provide many important benefits to investors and can lead to a better relationship with your advisor.  But having an IPS is not a guarantee for investment success.

The IPS that we develop for each of our clients provides a framework for how their assets will be invested and managed over time. The IPS provides the initial asset allocation, based on a client’s financial situation, risk tolerance, time frame and goals, among other things. Before we begin to invest any client funds, we discuss the IPS with our clients and both the client and our firm signs the IPS.

Having a written investment plan, which helps to guide future decisions and actions, can assist an investor in understanding the advisor’s strategy. For example, our IPS addresses that the investment time horizon is long term (defined as longer than 5 years). Our time horizon and decision making are not based on daily market news or current events. Our IPS explains why we recommend utilizing a globally diversified portfolio and acknowledges that this strategy may not outperform certain indexes over various time periods.

We feel it is important that our clients understand these concepts before we begin to invest on their behalf. We try to educate our clients and discuss these concepts with them.

Having a written investment plan can be helpful in remaining disciplined during difficult market conditions or when current events seem to be negatively affecting financial markets. We generally do not make major changes to a client’s IPS based on the past performance of a specific asset class or because of future predictions or expectations.

We would (and do) modify an asset allocation (IPS) based on changes in someone’s life situation, such as changes in assets or as someone gets older. The key is that changes in the investment allocation are more driven by personal changes, whether good or bad, and not based on predictions about the future of the stock market, interest rates or politics. We strive to provide rational and evidenced-based advice, not decisions driven by emotions, guesswork or predictions.

Risk tolerance is also very important in planning and developing an IPS. We provide written information on how poorly the proposed allocation would have done over many decades in the past. Why do we focus on the negative, and not the positive? Because by showing someone how much a proposed asset allocation did during bad time periods (such as the worst one year to three year losses for a given asset allocation), we are trying to determine if the investor will be able to handle the potential downside of this allocation. We don’t want investors to abandon their investment strategy due to down periods, which will inevitably occur again and again, during an investor’s life.

Having a written investment plan can be an important and evolving document for your financial life.

Like a great recipe, if an Investment Policy Statement is well prepared and followed, it could lead to a good outcome.

We also hope that a written investment plan may help you be more confident and have a greater sense of peace of mind.