Navigating the Investment Process With an Investment Advisor

Navigating the investment process with an investment advisor is an ongoing, collaborative journey. Investment professionals assess goals, develop diversified portfolios, and monitor investments to help clients stay on track toward their financial objectives.

Investors must understand that market volatility is inherent in the investing landscape. Keeping a level head during market changes empowers investors to navigate the terrain and confidently work toward their long-term goals.

Asset Allocation

Asset allocation is dividing your investment portfolio into different types of investments, such as stocks and bonds. The mix is based on your goals, time horizon, and risk tolerance.

An investment advisor like Fred Baerenz helps determine risk tolerance through detailed discussions and assessment tools. This allows us to construct a customized strategy for you and best positioned to help you achieve your long-term goals.

Since assets don’t grow at the same rate, your portfolio may need to be rebalanced periodically. When rebalancing, we sell some of your stock investments and buy investments in the underweighted asset class to align your portfolio with your desired asset allocation. This keeps your overall investment returns in line with your risk tolerance.

Investment Strategy

Defining specific and attainable financial goals is the first step toward establishing an investment strategy. Whether saving for retirement, funding children’s education, or purchasing a new home, goals guide investments toward long-term objectives.

Investment strategies differ depending on an investor’s horizon, risk tolerance, and other factors. Some systems, like value investing, seek out stocks with good quality attributes, while others, such as momentum or buy-and-hold investing, focus on stock prices reacting to news and market trends.

Due diligence involves assessing a potential investee’s financial health, history, market dynamics, and management team expertise. An information exchange protocol, including confidentiality undertakings and points of contact, is established in more extensive processes. Due diligence can also include an analysis of the business environment to evaluate economic trends and political events.

Monitoring

Managing a diverse investment portfolio requires careful monitoring to ensure each investment remains aligned with an investor’s financial goals and risk tolerance. As market trends, investment strategies, and economic indicators evolve, monitoring is an ongoing process that helps mitigate risks and enhance performance.

Establishing clear and attainable financial goals serves as a compass guiding market volatility. By embracing long-term objectives, investors like Frederick Baerenz can avoid impulsive decisions from short-term market turbulence and stay the course toward their financial goals.

Rebalancing

Rebalancing realigns a portfolio’s asset allocation with the target allocation established initially in an investment plan. This is accomplished by periodically buying or selling assets to reestablish the desired budget.

Rebalanced portfolios reduce risk over time. This is because when a riskier asset class, such as stocks, gains in value and becomes a more significant percentage of the portfolio, it becomes more susceptible to market volatility and losses.

Rebalancing helps prevent the riskier parts of the portfolio from getting out of proportion with the investor’s goals and risk tolerance. By rebalancing regularly, you will automatically be “selling high” and buying low, helping you avoid the trap of over-investing in winners. This is one of the most important rules of successful investing.

Taxes

Taxes are a major factor in determining how much you keep after you invest. As such, minimizing taxes is one of the most essential parts of an investment strategy.

However, advisors are often told by their (generally well-intentioned) compliance departments to refrain from advising clients on tax-related issues. This is not because there is anything illegal or unethical about this, but because doing so can create additional legal and financial liability for the advisor and their firm.

Unlike investment-related recommendations, many advisory firms still need policies or procedures to help ensure that they are giving advice properly regarding tax matters. As a result, they can be exposed to much more liability than they would be if they had the appropriate framework in place.