Strategic asset allocation accounts for 90% of a portfolio's return.

Tempted to roll the dice?

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I had just returned from the ice surface to the dressing room, got settled in my place and was starting to remove my hockey gear when the question seemingly came out of nowhere, sent in my direction.  The friend who posed the question knew my profession as a financial advisor although he was not a client, and we had never spoken about his financial outlook.


“So, Rick, have you jumped on the Company X bandwagon?”  (Don’t bother googling “Company X”; suffice it to know that it’s a high-profile tech company that is trying to weather a severe storm and its ongoing existence is uncertain.)


Now, those of you who know me well would attest that I take a pretty conservative approach to my finances and investments.  I don’t gamble, avoid debt, use dollar-cost averaging and most often take a pass on speculative investments.  Don’t get me wrong…I’m probably more entrepreneurial than most, but only toward industries and businesses that I fully understand.  If you can make sense of the business model and can identify the risks and opportunities, you’re able to make an informed decision as to the prospects for that company’s growth.

Making money for clients is not your advisor’s primary responsibility. That’s the market’s job.

Perhaps I’ve become a bit jaded over the past 28 years, but I’m challenged enough retrieving my emails some days let alone anticipate the fate of a much-beleaguered tech firm that has seen it’s lunch being eaten by its competitors over the past several years.  And the question brought me back to a philosophy I’ve adopted and shared with my clients over the past few years:

“Your advisor’s priority is NOT to make you money.”  Hey, wait… that could be mis-interpreted…let me try again…

“Making money for clients is not your advisor’s primary responsibility. That’s the market’s job. Your advisor’s primary responsibility is to help you find your place in that very crowded, noisy and often confused (and confusing) market.”

There we go… that’s what I mean.  With all due respect to my industry colleagues, I fear that we as professional advisors can be accused of being a little schizophrenic.  When the market is hot and our clients are receiving annual statements showing double-digit gains, we humbly resist the temptation to have “Genius” subtly embossed in gold on our business cards.  However, when the ravenous bear rumbles out of hibernation and eats up returns like I devour Timbits, don’t blame us… it’s the market’s fault!

An interesting study by Roger Ibbotson and Paul Kaplan was completed indicating that 90% of the return in any given portfolio came from the strategic allocation of the portfolio assets. This means that, above all else, ensure that your portfolio is properly diversified across the appropriate investment types (bonds, stocks, REIT’s etc.). Once that allocation is identified, the selection of actual funds (which can be quite stressful!) is not as important in determining your portfolio’s performance. I came across a good article by Dana Anspach that speaks to this issue entitled, “What Makes a Good Investment?” that’s worth the read.

As you work with your financial advisor, or search for counsel in that area of your life, be sure to understand their philosophy toward money and investing to ensure that you’re in synch.  Advisors are human, prone to attributing our own values and risk tolerances to clients.  Look to your advisor for a disciplined approach that puts your goals clearly in the crosshairs.