Putting it All Together
Once retained, you should expect the efforts of your Wealth Advisor to be focused at the very outset on implementing the following three objectives, all of which should be done on a personalized level:
Individualized Written Investment Plan
Wealth Advisors understand fully that each client is unique, especially with respect to risk tolerance. Therefore, they should work continuously to assess each client’s attitude toward risk and to tailor an individual, personalized portfolio with an appropriate level of risk. They must create and implement a written investment plan for each client. This can be accomplished through a diversified mix of mutual funds, fixed income, index funds or ETFs.
Proper Asset Allocation
More than 90% of the variation among investment portfolios historically has been caused by allocation choices among various asset classes. Therefore, some Wealth Advisors believe that investors are best served by using mutual funds and ETFs to participate in asset class performance. This avoids excessive exposure to specific and individual stock risk. Their focus on a risk-managed approach to investing should target a specified level of risk to be taken by the client in relation to the stock market averages. This is accomplished by using technical data points such as beta, standard deviation and mean and by using asset allocation software to align portfolios with the modeled level of risk to be taken by that client.
Preservation of Capital
The key to successful investing is not just to make money in rising markets but also to avoid losing big in down markets. Therefore, a good Wealth Advisor will manage money actively to participate in gains, but more importantly, to preserve capital. If deemed prudent, they may elect to take defensive measures in order to protect their clients’ assets.