Navigating the intricacies of the financial world to maximize returns and minimize risk is a task that requires knowledge, competence, and a reasonable approach.
Here’s how they can help.
Portfolio Management Expertise: Investment advisors have extensive knowledge of financial markets, asset classes, and investment options. They can leverage this expertise to construct and manage diversified portfolios tailored to your unique financial situation and goals.
Risk Assessment and Management: Advisors assess your risk tolerance, financial objectives, and investment horizon, which helps them determine an appropriate asset allocation strategy that balances risk and return.
Asset Allocation: Investment advisors recommend asset allocation strategies that align with your goals. They allocate assets across various asset classes, like stocks, bonds, and cash, based on risk tolerance and market conditions.
Broad diversification minimizes the impact of poor performance in any single asset class and reduces risk.
Regular Monitoring and Adjustments: Investment advisors meet periodically with their clients and make adjustments when necessary to ensure their portfolios remain aligned with their tolerance for and need to take risk.
Tax Efficiency: Advisors optimize investment strategies for tax efficiency. They consider tax implications when making investment decisions to minimize tax liabilities and maximize after-tax returns.
Behavioral Guidance: Investment advisors are crucial in helping you manage your emotions and behavior during market fluctuations. They provide reassurance and guidance to prevent impulsive decisions that may harm long-term investment goals.
Financial Goal Alignment: Advisors help define and prioritize your financial goals, whether retirement planning, wealth preservation, or education funding.
Education and Communication: Advisors educate you about investment options, strategies, and market dynamics. They foster a collaborative and informed approach to wealth management.
Value of evidence-based advisors
Evidence-based advisors, like Waypoint Wealth Partners (WWP), base their recommendations and decisions on peer-reviewed evidence and research.
“Passive investing”, which is used by WWP, is based on the premise that the market is generally efficient, and therefore, it is difficult for investors to consistently “beat the market” through active management.
WWP implements a passive investing strategy that seeks to capture the returns of the global capital markets. Client accounts are globally diversified across multiple dimensions, including market capitalizations, regions, sectors, and industries, to reduce risk.
Studies have shown that actively managed funds tend to underperform “passive” funds over the long term. According to the 2022 SPIVA (S&P Indices Versus Active) report, which compares the performance of actively managed funds against their respective benchmark indices, most active managers underperformed their benchmarks over the long term.
Specifically, the report found that in the US, over 15 years ending in 2022, 93.95% of all domestic funds underperformed their benchmarks based on absolute returns, and 96.54% underperformed based on risk-adjusted returns.
The impact of fees
Passive investing also reduces costs and provides diversification, which can help mitigate risk.
Research has shown a negative correlation between mutual fund fees and performance. Lower fees tend to be associated with higher investment returns. An article in Forbes referenced a 2019 Morningstar study finding that low fees tend to lead to higher returns.
Low fees reduce the drag on investment returns because a lower fee means more money stays in the investor's account, which can compound over time.
Overall, research suggests that low fees can contribute to long-term investment success.
What qualifications matter?
It can be challenging to evaluate the qualifications of financial advisors.
At WWP, investment advisors must have a BA, BS, or MBA degree and be either credentialed as a Certified Financial Planner®, Certified Public Accountant, Chartered Life Underwriter, or enrolled in a course designed to achieve these designations or possess the equivalent experience.
Here’s information about those credentials:
A BA (Bachelor of Arts) or BS (Bachelor of Science) degree is an undergraduate degree that typically takes four years to complete. Students can earn a BA or BS in various fields, including finance, economics, accounting, or business administration. These degrees provide students with a foundational understanding of the field and may provide a baseline knowledge of financial principles and practices.
An MBA (Master of Business Administration) is a graduate-level degree that provides students with a broad understanding of business operations and management. The degree typically requires 1-2 years of study beyond a bachelor's degree, covering topics like finance, marketing, accounting, strategy, and leadership.
The CFP® credential stands for Certified Financial Planner® and requires completing an approved educational program, passing an exam, and meeting work experience and ethics requirements.
The CPA credential stands for Certified Public Accountant and requires passing an exam and meeting state-specific educational and work experience requirements.
The CLU credential stands for Chartered Life Underwriter and requires completing courses and exams focused on insurance and financial planning.
Final thoughts
A well-qualified financial advisor can help you maximize returns and minimize risks by following an academically based investment philosophy.
Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. For WWP Important Disclosures and Index Descriptions: www.waypointwp.com/index-descriptions
The purpose of this content is to provide general information and does not constitute investment advice nor is it an offer or solicitation for the sale or purchase of any securities. The information represents the views of WWP at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein. In addition, there can be no guarantee that any projection, forecast or opinion in this material will be realized. Any statement nonfactual in nature constitutes only current opinion which is subject to change. Any tax and estate planning information offered by WWP is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Investment Advisory Services offered through Waypoint Wealth Partners (WWP), a Registered Investment Adviser with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training.