Today’s financial markets offer a wide array of investment opportunities and risks, each with its own seemingly endless supply of information. Everywhere you look, people offer you financial advice and espouse the benefits of the next great investment strategy.
Sifting through this ever-growing volume of information to make strategic investment decisions has become more time-consuming, complex and, at times, more confusing than ever before.
Wealth management is a long-term commitment that requires a comprehensive strategy, implemented through a series of coherent investment decisions. Successful investing requires a significant commitment of time, energy and attention. Following a sound process is the surest way to success.
Most people manage their investments part-time because their business or career consumes them. What precious little time remains is often eaten up by other distractions. But don’t pass on wealth management because of individual time constraints — consider a professional money manager.
Professional money managers focus their entire careers on managing money; it is their full-time job. Their professional success depends entirely on their clients’ successes. When seeking an investment consultant, follow a three-step process to develop, implement and monitor a personalized portfolio management plan.
Develop a plan
The critical first step in the process is a thorough analysis of your current financial situation and the results you expect to achieve. The analysis begins with a series of questions designed to elicit important information, including:
For what purpose do you need these assets in the future?
What is your time horizon?
Is liquidity a concern?
What is your risk tolerance?
Given your goals and your time horizon for investing your assets, what is the rate of return you desire to achieve?
The answers will help determine whether your portfolio should be invested in stocks, bonds, or a blend of the two. Research has shown that asset allocation, the diversification of your investments among asset classes such as stocks, bonds and cash, has a more significant impact on overall performance than other factors, such as stock selection and market timing.
This balance enables you to reach your goals without taking unnecessary risks.
Prepare an investment policy statement that clearly defines your objectives and provides a “road map” for executing your plan. Finally, the strategy developed serves as the benchmark against which investment performance will be measured.
Select an investment manager
After establishing a plan, begin identifying a portfolio manager or managers whose style, philosophy and performance best suit your investment strategy.
Portfolio managers should be carefully screened, because they will be responsible for selecting and monitoring the individual securities in your portfolio. The screening process should include reviewing credentials; determining the managers’ investment style; examining the managers’ performance record; tracking the consistency of the managers’ returns in varying market conditions; and evaluating and monitoring the level of risk taken, measured against the value of the returns generated.
Chart the results
Your investment consultant should closely track the progress of your portfolio toward achieving your goals. Comprehensive reports should be prepared, generally quarterly, detailing your portfolio’s activity and performance. The information provided in these reports allows your investment consultant to evaluate the following issues:
How has the portfolio performed relative to your goals?
How has the portfolio performed relative to the market environment?
How much risk did the manager or managers take?
Did the manager or managers add value?
How did the manager or managers perform relative to the peer group?
This information allows you and your consultant to evaluate and control the management of your assets.
The end result is peace of mind in knowing that a carefully assembled team of experts is working to help you achieve your financial goals, through their systematic investment discipline, financial expertise and personal attention to your objectives. After all, it’s your money.
Arthur Weisman is an investment consultant with EVEREN Securities. He can be reached at (216) 574-7300.
