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Waiting for Interest Rates to Rise

Nobody really knows exactly when, or by how much, interest rates will rise. But that likelihood is already priced into the market. Director of Fixed Income Brian Haywood on what you need to know if they do, and why sticking to your strategy will pay off in the end.

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True Goals in the Game of Life

True Goals in the Game of Life

life concept hand drawing on tablet pcWarren Buffett recently released his annual letter to shareholders and, as usual, it contains snippets of wisdom almost everyone can appreciate. One quote in particular stood out for us: “Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.”

What’s not to like about this wisdom from the Oracle of Omaha? And yet, how many families will actually apply his advice to their financial playing field instead of fixating on the attention- grabbing scoreboard of near-term market performance?

From what we’ve seen, precious few. Which brings us to the value that a good coach can add to your field of dreams. To form and stick to a personalized plan for your family wealth, it helps to have an advisor who is committed to not just talking the talk, but making sure that, together, you walk the walk toward your financial goals.

What the Scoreboard Won’t Tell You

In the financial industry, the scoreboard, or near-term market returns, is the primary tool used by brokers to sell more “stuff” to investors. There’s little that stokes the imagination and releases rewarding dopamine in the brain like the hopes of buying into the next best thing. Think tech stocks, real estate, and gold, to name a few. Financial intermediaries who earn their keep from trading commissions know that keeping you focused on the score board keeps you on the edge of your seat, forever uncertain about whether you should keep what you have or move on to the next promising stuff, with its new trading commissions.

Of course, returns are important, but as Mr. Buffett also points out in this year’s shareholder letter, “I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so.” If Mr. Buffett cannot win the scoreboard game, why would others think they can?

The Name of the Game: Planning and Discipline

While the scoreboard is about instant gratification, the playing field is about planning to reach your long-term goals while taking on the least risk along the way. Once a family goes through a thoughtful discovery process and understands how much return they need to accomplish their lifestyle, gifting and legacy goals, then their portfolio – their game plan – can be constructed toward achieving those goals with the least amount of risk required.

What does this level of plan-based management look like in action? Vanguard recently published a white paper, “Advisor’s alpha,” identifying a host of techniques that can be expected to meaningfully improve your investment experience … if you stick to the plan:

  •   Suitable asset allocation
  •   Cost-effective implementation (low expense ratios)
  •   Portfolio rebalancing
  •   Behavioral coaching
  •   Asset location (tax management)
  •   Spending strategy (withdrawal sequence)
  •   Total return versus income investingMeasuring Advisor ValueVanguard’s white paper demonstrates investors can achieve approximately 3% additional returns compared to the returns earned by investors who are not utilizing these best practices.

They define this premium as an advisor’s “Alpha,” or value-added beyond what do-it-yourself investors are expected to accomplish on their own.

The term “Alpha” can be a little confusing, because the traditional definition is how much value an advisor adds beyond market returns. We echo Mr. Buffett’s sentiments in calling for a more meaningful measurement. Citing Vanguard’s white paper, we believe an advisor adds the best value “through relationship-oriented services, such as providing cogent wealth management and financial planning strategies, discipline, and guidance, rather than by trying to outperform the market.” We think of that as the true “Alpha” by which a family’s wealth is best served.