by Bridget Hess

The idea of ‘managing your investments’ is weighty and complex. This concept is about much more than mutual funds. For many, it is a complex issue that gets to the heart of financial values and plans for the future.

“Over the past couple of years we have seen a real trend in the psychology of wealth,” said William Lowe, senior vice president and senior wealth adviser for UMB Financial Corporation. “Our clients are more concerned with whether their kids appreciate the wealth they will inherit, carry on the same values, are donating to charity. They want to use their wealth to leave a legacy and a true impact.”

A client’s emotional attachment to their wealth, said Lowe, is what drives their overall financial plan.


Have a Plan

In order to have a successful investment plan in place, it is important to have clear-cut goals: Do you want to build enough wealth to retire at age 55? Do you dream of a second home? Or do you hope to leave a legacy that will benefit your grandchildren and a favorite charity? Investing to fund a short-term goal is much different than investing for the long haul, therefore each goal should have its own parameters and timeline.

Doug Lockwood, vice president of Investor Guidance for American Century Investments, recommends a four-part guideline as part of any investment plan. It sounds basic, he says, but not enough people are following these important principles:

- Formulate a plan. Set goals. Be definitive and specific in your goals;

- Commit to a goal, and build and maintain a diversified portfolio to get you there;

- Stick with the plan for a reasonable amount of time;

- Start planning early.

“Some people say they can’t find the money to invest. Well, finding investable assets is hard for everyone [regardless of their income],” said Lockwood. “I tell clients to take a hard look at where their money is going, then do a cash flow analysis. They are surprised to see how eating out, buying clothes and morning lattes in aggregate add up. Even an extra $1,000 a year adds up in terms of achieving a long-term investment goal.”


Proper Asset Allocation is Essential

Joe Williams, director of equities for Commerce Trust Company, considers an investor’s choices surrounding asset allocation, such as how much to invest in stocks, fixed income or money markets, to be the most important decisions affecting the rate of return on their investment.

“Most people concentrate on names [of particular stocks or funds] because it is the fun part, but it is much less important than asset allocation,” said Williams.

And because each individual has different goals, timelines and risk tolerances, each investor’s asset allocation will be unique. A good financial adviser will determine what rate of return his or her client needs, take their timeline and risk tolerance into consideration, and design a portfolio with an asset mix which they expect will achieve that return.


Components of a Successful Portfolio

Financial advisers agree that asset allocation and diversification exceed which investment vehicles are chosen. However, what people want to know is: What is the hot sector? Which mutual fund bested its peers last quarter?

As a general rule of thumb but depending on how close they are to their specific financial goal, Lockwood typically recommends that his clients make up 80 to 90 percent of their portfolio with one of American Century’s life cycle packages. He will then suggest that the client invests the remaining 10 to 20 percent of their portfolio in sectors such as real estate, gold, life sciences or technology.

“A client can use a very fitting core portfolio, then a certain smaller percentage in sectors gives a little more sizzle. But those are limited because they are riskier,” said Lockwood.

Williams points to the extensive research his team, and investment research shops such as Morningstar, do to review the thousands of mutual funds available to investors. He uses this research to guide his clients as to whether they should choose an active manager [as with a mutual fund] vs. an index fund in particular categories.

“There is a place for both index funds and active managers in every portfolio. Research has shown that typically value managers have a hard time beating their index, whereas growth managers—such as small cap and international fund managers—have done a good job of beating their index,” said Williams.


Reviewing Your Plan

Your goals, and therefore your investing strategy, will change over time. Therefore, it’s important to continually examine the plan you have in place and make changes to it when necessary. In addition, investors need to periodically review their sector weightings to make sure they are still on track with the intended portfolio makeup.

“Annually I’ll sit down with a client to help make sure their original asset allocation plan is intact,” said Chris Costello, CEO of The Retirement Planning Group.

While an annual or quarterly review is important, financial advisors are quick to remind their clients that successful investing can take time, and it is important to be patient in reaching their goals. In fact, daily tracking can be nerve-racking for investors who are not mindful that ebbs and flows in the market are normal.

“I tell my clients that I will tell them to sell when they want to buy and tell them to buy when they’re most uncomfortable,” said Williams.

“Whatever you’re invested in, there’s always something that is doing better. Don’t jump off the ship. Be patient and give your strategy some time to work its course,” said Kelly Goodburn, an Investment Advisor with Bankers & Investors Company, an affiliate of Valley View Financial Group.


Creating Tax Efficiencies

Investing in a tax-deferred 401(k), 403(b) or IRA is repeatedly cited by experts as the best way to save on taxes. In addition, investors can look to specific vehicles, such as municipal bonds or index funds that tend to be tax-efficient. Yet again; these vehicles should be used in conjunction with proper asset allocation within a well-diversified portfolio. Some financial advisers will suggest additional tax-efficient strategies.

William Lowe, a senior vice president and senior wealth advisor with UMB Asset Management, suggests that it might make sense to invest in stocks, which are capital gain producing assets, outside of retirement accounts since the income will only be taxed at the favorable 15 percent capital gains tax rate. On the other hand, Williams prefers the flexibility of using assets he can trade more frequently without short-term capital gain consequences inside an IRA. Both strategies can be useful depending on an individual’s unique situation and when he or she prefers to pay the inevitable taxes.


Get Sound Advice

Average investors who have the time to carefully research fund managers and stocks, stay abreast of ever-evolving sector trends and have the knowledge to confidently create an investment portfolio to meet their goals are few and far between. The point is that most everyone needs to seek the advice of an experienced, trustworthy and unbiased financial adviser. Keep in mind when choosing this person that most anyone can sell investment products, but a truly good financial adviser will be someone who takes the time to get to know you and understand your financial goals.


Minimizing Income Tax

Succession Planning

Retirement Planning

Estate Planning

Managing Investments

Loss Prevention