How Do We Pick the Right Investment Recommendations? Adjust With Data.

How Do We Pick the Right Investment Recommendations? Step 3: Adjust With Data.

Hi, it’s your Money Mavens, and we are fiduciaries…

You may already be familiar with the term “fiduciary”, but it may be new to you.

Being fiduciaries means we treat your portfolio with the same care and attention as we do our own portfolios.

With your best interests in mind. As if your long-term financial goals were our own goals.

Being a fiduciary means we also stay current with evidence-based investing.

If we gain new information that may affect your investment accounts, we take the time to recommend adjustments as needed.

The world is constantly changing, and so are various funds in the marketplace.

So, how do we sift out and incorporate new best practices supported by new evidence?

That brings us to the third and final step in how we choose funds that may best fit our clients’ accounts.

Step Three: Adjust With Data.

In Step 1 we mentioned how we start with data – evidence-based investing.

While it’s important to adhere to a long-term outlook as an investor, even evidence-based portfolios are expected to evolve with time.

That’s not to say what advisors recommended for investors fifty years ago doesn’t still work today – some of it does – but our industry has also changed.

The Modern Portfolio Theory in the 1950s and the Capital Asset Pricing Method in the 1970s laid the groundwork for what our industry uses to build diversified portfolios today.

Over the past fifty years though, we’ve seen pricing models, mutual fund styles, and other key factors evolve with more data.

We also know how to better account for other persistent factors, like profitability, value, momentum, and others.

Most importantly, we’ve learned how to better understand how you as an investor have unique financial goals.

For our team at Hendershott Wealth Management, new studies can sometimes challenge what we believe to be true about how portfolios are best built.

Benchmarks and indexes improve over time as well, sharpening our ability to track and compare relative performance.

Enhanced technologies can help reduce, if not fully eliminate inefficiencies, making it possible to pursue expected sources of return that simply weren’t accessible to us in the past.

We need to pay attention to these updates – sometimes even develop them ourselves – to better serve our clients.

When new data shows itself, we need to respond to that data with the same care and attention we’d expect for our portfolios.

This can raise key questions for our clients, including:

  • If a new and improved “tax-wise” opportunity hits the market, what are the return expectations of the fund? After all, even low taxes can’t surmount the problem of low returns!
  • If it is a solid solution, how does it fit with your greater financial goals?
  • How can managing your portfolio, by adding new assets or rebalancing your portfolio to better align with your financial plan, help us incorporate the latest, greatest opportunities without leading to excessive costs?

These are a few of the many questions that we consider when looking at potential investment options for our clients.

Picking Investments to Build a Long-Lasting Portfolio

So, how do we choose the funds we use?

It depends on the most current research which guides us to generate the most reliable and safe returns.

It depends on paying attention to data that may help us when it comes to our attention.

It depends on what types of events and choices that might impact you and your financial future.

What your investment choices shouldn’t depend on is the daily news.

Financial, economic, and geopolitical events do influence your returns, but they shouldn’t dictate where you want to go with your financial future.

We understand there are and will be more ‘rollercoaster’ days in the stock market.

We recognize that inflation, recessions, foreign market activity, and a host of other market-specific factors can cause uncertainty and fear for investors.

That’s why we plan for those rollercoaster days and market volatility.

We help position our clients’ portfolios to better absorb volatility because it’s a matter of when, not if those hits will happen throughout the market.

It’s why we specifically look for investment managers who follow evidence, not emotions, when building solid solutions.

Choosing the right investments to recommend is a significant responsibility. With our process, you can know with confidence why we may recommend certain investments over others – and what that means for you as you look toward your financial goals.

To your prosperity,
Your HWM Money Mavens