Considerations and Techniques

When we develop an investment plan for you, we will look at many considerations and use various analytical techniques. Which considerations we look at and which techniques we use will depend on your circumstances, goals, and inputs. Listed below are some common considerations and techniques, and a brief description of them.

• Target risk/return preferences. Based upon your input, quantitative risk/return targets will be established for each investment goal.
• Time horizon. Based upon your input, appropriate time horizons will be established for each investment goal.
• Risk management. Recommendations will be made to control risk according to the target set. These may include diversification, dollar cost averaging, and the selective use of options.
• Optimal asset class allocations. Recommendations will be made for each category of accounts (tax-free, tax-deferred, taxable) for the asset class allocations to most likely achieve the target risk/return. Examples of asset classes are cash equivalents, large capitalization equities, corporate bonds, and municipal bonds. Asset class selection will likely have a major impact on your investment results.
• Industry sector allocations. Recommendations will be made for any special weighting of assets by sector. Examples of sectors are health care, utilities, basic materials, and consumer products.
• Account type allocations. You may have choices on when, where, and how much to invest in various accounts. For instance, you may be eligible to make retirement contributions to a Roth IRA, a Traditional IRA, and a 401(k) plan. Recommendations will be made on which accounts will give the greatest after-tax return and how available money should be allocated between them. Conversely, a retired person may have choices as to which retirement accounts to take money out of first. Recommendations will be made on which accounts to withdrawal money from first, second, etc. Account type allocations can also be influenced by estate planning considerations, administrative ease, etc. Account type allocations and saving/withdrawal sequences will likely have a major impact on your after-tax investment results.
• Reduction of wasted investment expenses. Some investment expenses do not increase return or reduce risk. Recommendations will be made on how to reduce such expenses.
• Assessment of liquidity needs. This involves assessing when you may need cash (either for planned or unplanned needs) and insuring that the portfolio has ample liquidity to convert securities into cash.
• Role of home ownership. This deals with the investment characteristics of homes and mortgages. Recommendations will be made on how to integrate home ownership into your investment plans.
• Role of International investing. Recommendations will be made on the role of non-US securities in increasing returns and reducing risks.
• Reduction of transaction costs. Transaction costs are necessary, but need to be kept low. Recommendations will be made on how to keep transaction costs low.
• Optimization of after-tax returns. After-tax returns are influenced by the account type and also by issues involving capital gains versus ordinary income, short-term vs. long term capital gains, parent's tax rates vs. children's tax rates, pre-retirement tax rates vs. post-retirement tax rates, etc. Recommendations will be made on ways to improve the chances of optimizing after-tax risk/returns.
• Portfolio re-balancing and mix changes. Over time, the portfolio will deviate from the asset class mix for established for the target risk/return. In addition, circumstances may change that require a change in the target asset class mix. Recommendations will be made on when & how to rebalance and adjust the mix.
• Transition plan. If you decide to implement the investment plan recommendations, care must be taken on how to transition from your current investment position to the recommended one. Recommendations will be made for a transition plan.
• Analytical techniques. Analytical techniques include (a) efficient portfolio calculations that use the historical and projected characteristics of asset classes to estimate an optimal portfolio for a given target risk/return, (b) constant $ projections that use future projections of inflation to convert future projected account balances into today's dollars, (c) tax-free vs. tax-deferred vs taxable return comparisons to analyze the impact of income taxes, and (d) simulations using the theories of sampling, probability distributions, and statistics to make projections, under conditions of uncertainty, to place upper and lower bounds on future investment returns and account balances.