Investment Policy Statement
We believe a sound investment plan begins with an individual’s investment policy statement, which outlines the financial objectives for the portfolio as well as any other pertinent information such as the investor’s asset allocation, annual contributions to the portfolio, planned expenditures, and time horizon. Unfortunately, many ignore this critical effort, in part, because it can seem very time-consuming, detail-oriented, and tedious. But this process is integral to a client’s investment success; it’s the blueprint for a client’s entire financial house and, done well, provides a firm foundation on which all else rests.
Because investing evokes emotion, we help our clients maintain a long-term perspective and a disciplined approach. Most investors are aware of time-tested principles, but the difficult part of investing is sticking to them in the best and worst of times. Abandoning a planned investment strategy can be costly, and research has shown that some of the most significant causes are behavioral: the allure of market-timing and the temptation to chase performance.
Understanding a client’s investment personality involves identifying their unique traits. We identify their goals, priorities, values, and fears and apply that understanding toward tailoring a comprehensive financial strategy. Our goal is to get to know you better as an investor and even help refine your own preferences with respect to investment-related decisions. Based on this deeper understanding, we can improve the customization of the investment approach we develop together to help you reach outcomes that are personally meaningful to you.
Staying Committed to a Disciplined Process
We believe that any quest for the newest, hottest investment product is more about entertainment than outcomes. Instead, we believe that an outcome-driven plan and a multi-asset approach can help investors practice disciplined goal-setting when coupled with flexible, opportunistic investment execution.
At every turn, investors need to ask themselves: What is it I have in mind? Do I want to just chase the market impact of today’s headlines? Am I so smitten with the latest investment product or do I care more about outcome-oriented goals such as a comfortable income during retirement that can meet its liabilities over the next two to three decades?
Over the years, we’ve seen plenty of evidence that our clients who stick to a disciplined strategic asset allocation often achieve their chosen outcome. An outcome-oriented discipline helps us make decisions for how we allocate assets, manager assignments, and market exposures.
Our strategic beliefs get embedded in our portfolios so that during difficult times, we remain grounded in our philosophy which was decided beforehand and not in the emotion of the market. These beliefs are the underpinnings for the decisions that are built into our investment process.
Asset Allocation and Diversification *
Asset allocation and diversification* are two of the most powerful tools to help clients achieve their financial goals and manage investment risk in the process. It is widely accepted that a portfolio’s asset allocation, the percentage of a portfolio invested in various asset classes such as stocks, bonds, and cash investments, according to the investor’s financial situation, risk tolerance, and time horizon—is the most important determinant of the return variability and long-term performance of a broadly diversified portfolio that engages in limited market-timing.
Given the importance of selecting an asset allocation, it’s also vital to maintain that allocation through time. As a portfolio’s investments produce different returns over time, the portfolio likely drifts from its target allocation, acquiring new risk-and-return characteristics that may be inconsistent with the portfolio’s original preferences. The primary goal of a rebalancing strategy is to minimize risk, maximizing return is secondary.
Asset location, the allocation of assets between taxable and tax-advantaged accounts, is a process we use with the expectation that the benefits will compound through time. From a tax perspective,* optimal portfolio construction minimizes the impact of taxes by holding tax-efficient broad-market equity investments in taxable accounts and by holding taxable bonds within tax-advantaged accounts. This arrangement takes maximum advantage of the yield spread between taxable and municipal bonds, which can generate a higher and more certain return premium. And those incremental differences have a powerful compounding effect over the long run.
Building from our extensive analysis, we apportion asset classes to the appropriate entities to fully realize after-tax performance potential. By identifying each entity’s optimal after-tax contribution within your overall portfolio, we help construct the most efficient strategy, then submit our plan for your review and approval.
As a rule we conduct a cost analysis on every portfolio to determine cost efficiency. Cost-effective implementation is a critical component of an efficient portfolio and is based on simple math: Gross return minus costs (expense ratios, trading or frictional costs, and taxes) equals net return. Every dollar paid for management fees, trading costs, and taxes is a dollar less of potential return for clients.
To be truly successful, your portfolio should be created around your very specific circumstances and objectives—there should be a purpose, role and reason for everything in it. To achieve this, we start by getting a complete understanding of your needs and goals.
Once we have a thorough understanding, the next step is customizing your strategy. As we create your plan, we consider your needs from two simple perspectives—what you want for living and what you want to leave for family or other purposes. This approach is called objective-driven investing. It helps us recommend strategies that are best suited to your specific goals and that help to give you confidence that your investments are performing and growing as you would expect—when you would expect.
In developing these portfolios, we tap the expert guidance of our entire investment team. Using their insights and recommendations as a guide, we develop an appropriate strategy unique to you, your circumstances and goals. By leveraging our best thinking, then making it personal, we can help you achieve your objectives and ensure success and comfort with your plan.
Throughout our relationship, we continue to work to understand your changing circumstances and objectives, as well as evolving market dynamics and opportunities. In this way, we can ensure that our ideas and actions on your behalf are always aligned with your goals and interests and supported by our best and most current thinking.
*Diversification is a method of limiting risk, but does not ensure a profit or protect against loss in a declining market.
*Virginia Asset Group & Infinex Financial Group do not provide tax advice. Please consult your tax advisor for your particular situation.