Wealth Planning - Investments: Other Considerations
Investments: Other Considerations

The Securities and Exchange Commission provides a great webpage on Ten Things to Consider Before Making Investment Decisions. While we’ve addressed several of these items elsewhere in our LEARN topics, there are a few other things you might want to consider specific to how you would like your money managed. Once you’ve defined your goals, risk tolerance and determined your basic asset allocation, you might also want to:

1. Define Your Asset Allocation Management Style Preference. Do you prefer a “set it and forget it” asset allocation strategy or do you want your allocations to be actively managed in an attempt to enhance returns? Selecting an allocation method that is aligned with your preferences will help avoid mismatched expectations down the road.  Three common allocation strategies include:

• Strategic asset allocation is a portfolio management approach that involves setting target allocations for various asset classes and maintaining those allocations throughout market cycles. The portfolio is rebalanced to the original allocations when they deviate beyond specified limits due to differing returns from the various assets.  No adjustments to the allocations are made for current or expected market or economic conditions.
• Dynamic asset allocation is a portfolio management strategy that frequently adjusts the mix of asset classes to suit market conditions. Each asset class will be actively managed within a band of tolerances to account for the model provider’s bias for or against various asset classes based on current and expected market or economic conditions.  These are seldom “all-in” or “all-out” of any asset class, but rather over-weightings or under-weightings of allocation percentages within predefined minimums and maximums.
• Tactical asset allocation is similar to the Dynamic style but without the guardrails of predefined minimum or maximum allocations.  Tactical allocation managers have wide latitude to move into and out of various asset classes based on their own research, biases and expectations.

2. Define Your Security Selection Preference. Do you believe that active security selection can improve returns, or do you prefer the generally lower cost of passive management?

• Passive security selection is a style of management where a fund or ETF’s portfolio mirrors a market index. Passive management believes that the markets are mostly efficient, making consistently picking individual stocks that outperform difficult, if not outright futile. As a result, passive investors believe the best investment strategy is to invest in index funds, which have historically outperformed the majority of actively managed funds and have generally lower internal expenses.
• Active security selection is a style of management that seeks to outperform the indices by actively researching and selecting individual securities. Active managers believe it is possible to consistently select securities that will perform better than the market as a whole through fundamental analysis, analytical research and any number of other strategies that seek to identify high potential investment opportunities.

3. Determine if you have any Special Criteria. While we would all prefer to pay less in taxes, do you need your investments to be especially tax-sensitive?  Do you have environmental, social, or other views you want reflected in your investments? A couple of common criteria include:

• A Tax-Sensitive Portfolio is one in which strategies are employed to minimize taxable events within the portfolio.  This may include strategies such as replacing taxable bonds with tax-free municipal bonds, holding certain securities to realize long-term instead of short-term capital gains, or limiting the trading activities within the portfolio. While the goal is to minimize the tax burden incurred, investors are likely to still experience some tax liability as a result of investing in a tax-sensitive portfolio.
• Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.  Each fund manager or ETF provider will screen the universe of available securities for the ESG criteria before then applying their own investment discipline to the security selection process.

4. Understand the costs. While many fees such as commissions, advisory fees or transaction fees may appear directly on your statement, other fees, such as the internal expenses of the funds or ETF’s in your portfolio are not as apparent. These fees may add as much as 1% or more annually to the cost of your portfolio and directly impact your returns. Ask your advisor or read the prospectus to find out the internal expense ratio of the funds in your portfolio.

To learn more call (805) 988-2151 ext. 5710 or complete the form on this page to schedule an appointment with one of our advisors.

The information presented here is for educational purposes only and should not be considered financial, tax or investment advice. Please consult a qualified professional.

Non-deposit investment advisory products and services are offered through CuVantis Wealth Planning, LLC, (“CuVantis”), a California Registered Investment Advisor. Credit Unions have contracted with CuVantis to make non-deposit investment advisory products and services available to credit union members.  Investments offered through CuVantis are not federally insured, are not guarantees or obligations of the credit unions, and may involve investment risk including possible loss of principal.  Investment Representatives are registered as Investment Adviser Representatives of CuVantis. Advisory services are only offered to clients or prospective clients where CuVantis and its representatives are properly licensed or exempt from licensure.

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