Our Five-Point Investment Plan

Studies have shown that those who try to beat the stock market will most likely fail over the long term. However, given the right approach, we believe that our Clients will have a much better chance of reaching their long term goals if they follow our Five Point Plan:

  • Invest a set amount of money periodically,
  • Hold your investments for the longest possible time period,
  • Obtain the highest possible rate or return with the lowest possible portfolio volatility,
  • Minimize portfolio fees and taxes and
  • Use the right strategy

A. Invest a set amount of money periodically

Because nobody knows how the market will behave, an Adviser can make an estimate of what the Client needs to put away, but this is not exact science, and adequate margins have to be built into the estimate which has to be reviewed annually. Contributing money periodically can allow those on a budget to start accumulating money for retirement.

B. Hold your investments for the longest possible time period

Consider that even when you retire, you will not withdraw everything at once. Thus, your portfolio will be growing past your retirement age. Because of compounding and dividends, the longer the holding period before withdrawal, the better the likelihood that you will achieve your goals.

C. Obtain the highest possible rate of return with the lowest possible portfolio volatility

Having too much volatility can destroy a portfolio when you are least expecting it. Higher volatility can mean higher return, but it can also mean much higher losses. Portfolios with high volatility are more susceptible to extreme stock market downturns, thus, it is preferable to find the right balance between volatility and returns.

D. Minimize portfolio fees and taxes

This is by far one of the most overlooked aspects of investing. When you pay 1.2% for an average mutual fund, this cuts into the long term returns, and because the holding period will be measured in decades, this becomes a significant expense. Care must also be taken when investments are held in taxable accounts. Tax inefficient investments as well as frequent trading can take a big bite out of your portfolio over time.

E. Use the right strategy

This is the most important aspect to investing. Without a multi-year plan which only changes in response to major life events rather than at whim, it can be impossible to achieve your financial and retirement goals. Selecting investments is only part of this strategy. To be successful, every Client needs their own long term strategy which is tailored exclusively for them.

General Investing

What is your investment strategy?

The stock market crashes of 2000 and 2008 have taught many investors something that was already known in the early 1960s to Benoit Mandelbrot, the mathematician behind the fractal theory of markets: the stock market is much riskier than most investors realize, and the fallout from this hidden risk can bring financial ruin to those who do not take steps to manage their portfolio risk. It is also hard to dispute that while anybody can get lucky for a year or even 5 years, over several decades it is almost impossible to beat the market consistently. Thus, our investment approach is twofold. First, diversify across many asset classes by holding a portfolio of passively managed index funds to capture the market returns, and second, manage the volatility and eliminate the hidden risk by making sure that all portfolio investments conform to our strict set of guidelines.

What value does an investment adviser add?

According to studies run by DALBAR, an average investor underperformed S&P500 by as much as 5% annually (on average) over the past two decades. An adviser can play a critical role in making sure that their Clients don’t become part of this statistic by helping their Clients formulate a long term investment plan and by guiding their Clients in times of uncertainty to make sure that they stick to their plan.

An investment adviser who can help you implement the five steps described in our Five Point Plan will increase your chances of achieving your retirement goals (vs. having no plan at all). In addition to managing your portfolio, a good adviser will also give you advice on many important financial issues. A fee-only adviser will work to achieve the best results for you, and will not be motivated to recommend products simply to earn commissions.

An average investor pays 1.2% in mutual fund fees. In addition, most actively managed mutual funds employ market timing strategies which typically underperform S&P 500 index. While there are no guarantees, everything else being equal, mutual funds with the lowest fees should provide better returns over the long term. A mutual fund with high fees may seem attractive based on a 3 or 5 year record. Unfortunately, the record doesn’t look so great after 20 years. A good adviser would be able to significantly decrease the cost of owning mutual funds, and often that cost alone justifies the expense of hiring an adviser to manage your portfolio.

How does your background make you a better Investment Adviser?

Having a background in Engineering and Mathematics allows me to understand the limitations of different investment approaches, as well as the limitations of different types of software which is routinely used to try to ‘predict’ the performance of portfolios.

In fact, there is no acceptable market theory which works all the time. Even the Modern Portfolio Theory is but a simple model, and while it is useful for gaining a conceptual understanding of how Stock Market works, it is very difficult to use in practice because many of its assumptions simply do not apply to the actual Stock Market.

We will not risk your money needlessly on strategies that will cost you more than they are worth. Getting market returns over the long term has proven to be better than most professional portfolio managers can ever deliver.

For Younger Investors

Do I buy that house or do I rent?

This is probably the biggest financial decision of your life. It is sometimes much cheaper to rent, and we can help you estimate whether you can afford to buy a house. It is true that a house is a place to live in, but it is also a huge investment, and if handled improperly, this investment can set you back hundreds of thousands of dollars over many years – the money you can use towards your retirement instead.

I’m a young professional, I don’t have much money to invest. How do I get started?

Even if they land a good job right out of college, young professionals typically have sizable debts, such as college and car loans and credit card debt, as well as relatively high living expenses. Investing is usually not the first thing that comes to mind when young professionals plan their future, but it should be. Corporate pensions are all but gone, and social security may not be around in the future.

Most of those working corporate jobs have access to a 401(k), and if not, to an IRA. Self-employed, or contract employees can open their own SEP IRA or a Solo 401(k). The first thing one needs before deciding how much to invest is a good budget, and sometimes getting rid of expensive debt is the first priority.

Small Business

I’m a small business with just myself. What options do I have for retirement plans?

You probably have the most options available to you. We can provide you a list of plans and plan providers based on your specific needs.

I’m a business with several employees. What options are available to me?

You may need to match a part of the employee’s contribution, depending on what type of plan you offer. This is not a reason NOT to open a plan – it can be used as a tool to retain employees, as well as a way to save money for your own retirement. Costs are a major factor for small companies, so we will offer the best solution for your business.

My business is very profitable and I don’t want to lose it all to taxes. What do I do?

There are options for high earners, especially for those who own their own business and have no employees other than family members. A plan tailored to your needs can be set up just for you.

I’ve opened a plan or I have an existing plan. What can you do for me?

The following is a detailed overview of our retirement plan services for new and existing retirement plans: Retirement Plan Consulting Services