Developing your investment strategy

When Arlene* met with us to discuss an investment strategy for her $5 million portfolio, we began by asking her a series of questions about her goals, her tolerance for risk, and her general attitude toward her investments. It became clear that Arlene's strategy thus far had been to designate separate portions of her total investment portfolio to meet different goals. We had seen many investors take this approach of dividing their assets into their "safe money" and their "risky money," and realized that we needed to help Arlene look at things more holistically.

When we asked for documentation around Arlene's existing investments, we were presented with several folders full of statements from a number of different firms. Roughly $2 million of her assets were with one manager, another $2 million with a second, and the remaining $1 million spread around in small pieces at a number of smaller firms. As we took a closer look at her underlying investments with these various managers, the picture that came together was a disjointed one.

On an aggregate basis, it turned out that Arlene was overexposed to some securities and sectors and underexposed to others. One of her accounts showed strong performance, but for what we deemed to be an excessive level of risk for Arlene. And because another account of roughly the same size was being invested too conservatively, her blended return was sub-par.

A look at Arlene's fixed income portfolio revealed a lack of coordination between her municipal bond manager and her accountant: the manager was unaware that, two years prior, Arlene had retired and entered a lower tax bracket. Her current muni portfolio was no longer appropriate for her, given her current situation.

We discussed these issues with Arlene and also raised the point that this lack of coordination could be—and probably already had been—quite damaging to her from a tax perspective. For instance, if one of her managers sold a security to take a tax loss, another could be buying that same security in a different one of her accounts, triggering the "wash sale" provision that would not allow her to book those losses.

We agreed to help Arlene structure an appropriate total portfolio that would eliminate some of these disconnects and duplications. We took over a portion of her assets to manage internally and continued to play a "quarterbacking" role in overseeing the other components of her portfolio and coordinating with her accountant, attorney, and other advisors to ensure an integrated strategy that would put Arlene on the right path toward her financial goals.

* Names and some details have been changed to protect client confidentiality. Your particular situation can differ based on your unique needs and objectives.