For many of our clients, the idea that their portfolios should “never walk alone” is probably obvious enough. Financial planning should constitute a comprehensive approach to creating, implementing, and monitoring a plan tailored to each client’s individual goals, needs, and circumstances.
The plan should include, where applicable to the client’s situation, services in different areas, such as cash flow analysis, insurance, tax planning, retirement planning, investments, estate planning, college funding, and executive benefits. As this list shows, the investment portfolio is but one part of the critical larger financial plan. Often and understandably, however, it can take on out-sized significance in a client’s eyes and end up viewed on its own, independent of the progress of the overall financial plan.
I like to think of a financial plan as a machine designed and built with the intent to achieve the client’s goals. The investment portfolio is a part in that machine with a particular job to perform in helping the machine achieve its purpose.
Given the portfolio’s role in a financial plan, Modera doesn’t construct client portfolios in the abstract with a singular goal of simply maximizing return. Rather, the portfolio should be understood and built to help create a successful overall financial plan.
In working with a client to select an appropriate portfolio, we consider a number of factors. Paramount among them is what our financial planning indicates is the long-term rate of return a client needs to help meet the client’s goals and have a successful outcome. This exercise starts by spending considerable time working with a client to discover those goals, both long-term and more immediate. From there, we assess the projected costs over time of those goals, the assets available to meet them, and the expected contributions to savings. Once the goals are defined and the other data assembled, our team works to determine what rate of return is needed from the investment portfolio to help the client meet those life’s goals.
As part of this analysis, our planning process also assesses a client’s risk tolerance, another important factor to help arrive at an appropriate portfolio allocation. Many clients have completed the risk tolerance questionnaire we use. That questionnaire helps us gauge each client’s comfort level with investment risk so the portfolio allocation incorporates potential emotional and behavioral considerations.
Our clients are no doubt well aware of a central tenet of Modera’s management philosophy: One should take no more risk in the investment portfolio (and elsewhere in the overall financial plan) than is necessary to reach one’s goals. This simple philosophy nicely demonstrates the critical intersection of financial planning and investing and highlights the appropriate role investing plays. Understood in this way, the portfolio doesn’t walk alone or lead the way. Rather, it travels hand in hand with and in service to the other elements of the financial plan.
At times we all can get fixated on assessing the performance of the portfolio standing alone or relative to some single benchmark such as the S&P 500 Index. This often occurs in times of market outperformance or negative returns. No matter what the situation, it can be helpful to remember that the investment portfolio is a part in the larger machine that is the client’s financial plan. Consider not its absolute performance but rather evaluate whether the investment portfolio is holding up its end in providing the returns needed to make the overall financial plan successful and help provide peace of mind.
Modera Wealth Management, LLC (“Modera”) is an SEC-registered investment advisor with places of business in Massachusetts, New Jersey, North Carolina, Georgia and Florida. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. SEC registration does not imply any level of skill or training. For information pertaining to our registration status, fees and services, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov) to obtain a copy of our disclosure statement set forth in Form ADV Part 2A. Please read the disclosure statement carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements, information and opinions expressed in this article are subject to change without notice.
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