Any investment adviser can talk about Wall Street, NASDAQ and the S&P 500 – they know them inside and out. However, a professional investment manager understands that managing your investments is more than just understanding the investing arenas — your investments must take you where you want to go in life.
A successful investment management strategy takes a structured and disciplined approach to investing. The entire decision-making process, from constructing a portfolio through the regular monitoring of it, revolves around the client’s needs and objectives. Inherent in that process is an uncompromising commitment to excellence, evidenced by quantifiable performance evaluations that are initiated on a timely basis.
The two pillars supporting the performance goals for each client are an investment policy statement and an asset allocation analysis. The investment policy statement is a precise articulation of the client’s objectives, distilled from thorough discussions of the client’s situation, experience and prospects.
The policy should be made for the long-term, not to time the market. A disciplined policy aligns the investment strategy to meet the client’s objectives.
The other cornerstone of a sound investment philosophy emphasizes the use of asset allocation — a disciplined, long-term financial approach for investing money into various asset classes based on your investment goals, time horizon and risk tolerance. With asset allocation, the investment is spread among various asset classes, such as stocks, bonds and cash. Within these broad categories, there are different types of stocks and bonds, as well as different investment strategies, such as growth and value investment styles.
Once educated, investors enthusiastically embrace the critical importance of active asset allocation as an integral element in accounting for the performance of their investment portfolios. Your investment strategy should be a disciplined process to optimize your portfolio and focus on five areas.
* Financial assessment. This distinctive planning process allows a better understanding of your unique situation as an adviser helps you develop a complete financial profile.
* Defining a goal. This process allows you to identify risk tolerance, income needs, investment horizon and acceptable investment mediums, which will translate into investment objectives.
* Asset allocation. You can evaluate eligible asset classes and develop an optimal asset mix, which can reduce risk and enhance returns.
* Portfolio construction. This begins with the assessment of existing holdings and a review of new opportunities. Adjusting asset allocation will optimize tax efficiency and determine fund investment vehicles.
* Ongoing performance monitoring. This process will assess portfolio performance against appropriate benchmarks. It will confirm your portfolio is still consistent with your goals, objectives and expectations. A rebalancing of your portfolio is done as needed to keep it in line with long-term asset allocation ranges.
As the professional investment manager is challenged by the clients’ unique needs, he or she must always focus on investing in pure asset classes and utilize professional capabilities. Professional investment managers tailor portfolios across a range of asset classes using information gleaned from a variety of expert sources. What’s more, they provide the best of the best in terms of the availability of pooled funds in each asset class, run by superior managers with strong track records who have carefully avoided style drift.
So what should you look for in an investment manager? Consider the following.
* Proven investment discipline that uses solid asset allocation models to help clients reduce risk and improve investments returns
* Excellent client service
* Sophisticated risk control in the portfolio construction process
* Cost-effective professional management with no conflicts of interest
* Consistent communication between you and your investment manager
Professional investment managers are not market timers, nor are they “hot stock” pickers. Rather, they are investors who deliver excellence through timely client communication and outstanding research and by paying close attention to performance.
They reside in no ivory tower; instead, the client is at the center of the process.
Once an investment policy statement is developed and an appropriate asset allocation is established, the structure and discipline that you and your investment manager continue to implement will result in a successful, long-term relationship.
Joseph Wojcik, CPA, MT, is senior vice president and regional executive for Stark-Summit Counties for Sky Bank. Reach him at (330) 258-2360 from Akron, (330) 498-4623 from Canton.