Over the next few postings I will explore common behavioral traits demonstrated by individual investors with the hopes of shedding light on the unseen or overlooked risks investors expose themselves to and how a partnership with a financial planner/wealth manager can  help.  I will start out the series with a look into the risk of uncoordinated assets, then move into behavioral attitudes of chasing the market, and wrap up with an examination behavioral tendencies at the individual investment level.

As investors progress through their career it is common to “collect”  multiple accounts at different institutions without ever consolidating them.  One contributing factor is the generational belief of diversifying institutions to prevent a catastrophic loss in the event of firm failure.   However, many times after a job change the company retirement account will sit with firm while the investor takes up a plan with the new employer.   Given the average number of jobs held in a lifetime is 11.4 for men and 10.7 for women, it is not hard to see how accounts can accumulate over time (Bureau of Labor Statistics NLSY79).

The consequences of the firm diversification is a decrease the portfolio efficiency through duplication and overlap of investments, disorganization of asset class structure leading to missed opportunity, and an increased complexity in monitoring for efficacy.

By working with Indelible Wealth Group, individual investors will build a disciplined rebalancing behavior, establish a system for implementation, and inspire greater confidence in their investment potential.  The client planner relationship will specifically benefit the investor as follows:

  1. Structuring of Asset AllocationAn investor’s Asset Allocation should reflect their current stage in life and be structured to provide the greatest potential to meet their goals and future needs while being aligned with their feelings about volatility and risk.
  2. Monitoring of Asset Allocation: Asset allocation investing is a dynamic process, requiring ongoing monitoring to ensure funds/moneys remain in line with the investor’s tolerance for volatility, stage in life, and overall goals. Reallocation should occur when there is a change to your overall goals, time frame for investment, or family dynamics.
  3. Correlation of the Investments, Funds and Managers within a Portfolio: Each investment, fund or manager must fulfill a specific role within the portfolio and have a consistent methodology and track record of performance vs. his or her peer group and benchmark index. Each investment, fund or manager must work well within the overall structure of the portfolio and avoid duplication, overlap, and conflicts.

By aggregating investments with your trusted advisor you will achieve a healthier portfolio as your assets will work together to minimize high correlation, duplicitous overlap and inefficiencies.

The simple action of market movement will influence a portfolio’s ratios of stocks to bonds, as well as sector concentration.  Without ongoing attention a portfolio will naturally transition towards a more aggressive allocation during periods of market advances.  While this movement is good for the value of the portfolio, it also brings increased risks when markets cycle into contractions.

Without a disciplined investment strategy and ongoing monitoring of the big picture, investors will see their accounts experience greater downside risk and subject themselves to emotional investment decisions.  The resulting temptation is to sell into a declining market in order to protect “what is left”, and the unintended consequence is missing the market rally while waiting for a “safe re-entry point”. Unfortunately, this decision happens far too often, especially with unconsolidated investments.