Wealth Planning & Advice

Asset allocation refers to the percentages of a portfolio invested in various asset classes such as stocks, bonds, Commodities, REITs and cash investments, according to the investor’s financial goals, risk tolerance, and time horizon. It is the most important determinant of the return variability and long-term performance of a broadly diversified portfolio that engages in limited market timing.

While tax-loss harvesting is not new to the industry, in recent years, technology has enabled this once paper-driven strategy to become digitized and thus more scalable and cost effective. Consequently, most advised investors can now benefit from a tax-loss harvesting program to defer or even eliminate capital gains taxes. This allows more capital to remain invested, thereby improving after-tax portfolio returns and client outcomes.

Given the importance of selecting an asset allocation, it’s also vital to maintain that allocation. As investments produce different returns over time, the portfolio likely drifts from its target allocation, acquiring new risk-and-return characteristics that may be inconsistent with your original preferences. Note that the primary goal of a rebalancing strategy is to adhere to the investor’s risk tolerance. Investments that are not rebalanced but drift with the markets have experienced higher volatility.

Investment selection and cost-effective implementation is a critical component of every advisor’s tool kit and is based on simple math: gross return minus costs (expense ratios, trading or frictional costs, and taxes) equals net return. As the formula states, it is not always about lowest costs, but gross returns less expenses. As such, we do not rule out active management. Over the long term, index and talent driven active funds with higher gross returns at lower costs, have and can be expected to outperform the return of the average mutual fund in their benchmark category. So, costs matter, and superior talent with low costs matter even more.

Investing often stirs emotion, making it difficult for clients to stick to long-term strategies—even when they understand sound investment principles. Emotions aren't a matter of being rational or irrational; they're simply human. Influences like media headlines and market “experts” can tempt clients to abandon well-constructed plans, often at a high cost.

This is where advisors play a critical role. Acting as behavioral coaches, we help clients stay disciplined, especially during market extremes. Providing emotional detachment—an often overlooked but vital benefit—can protect clients from making poor decisions driven by fear or greed. 

Trust is key. Advisors must build strong relationships early, so we can effectively guide clients through volatile markets. By helping clients avoid chasing hot trends or fleeing during downturns, we can prevent significant wealth destruction by adding real value.

With the retiree population on the rise, an increasing number of investors are facing important decisions about how to fund their retirements while also accounting for additional goals, particularly related to legacy and estate planning. Complicating matters is the fact that many hold multiple account types including taxable, tax-deferred (such as traditional 401[k] or IRA), and tax-free (such as a Roth 401[k] or IRA). Add to that consequential decisions around Social Security claiming and advanced planning tactics such as Roth conversions, and the decisions can quickly become overwhelming for even the most knowledgeable investors.

While the decisions have become more complex and the stakes higher than ever, fortunately, the technology enabling us to get them right has improved dramatically as well. Advisors who implement a more comprehensive approach focused on multiple goals and including Social Security, Roth conversions, and informed withdrawal-order strategies can minimize the total taxes investors will pay over the course of retirement, thereby increasing their wealth and the longevity of their portfolios.