Investor checking performance of financial portfolio online whilst reviewing investment statement

Five Common Misconceptions about Wealth Management

When it comes to portfolio management, there is no one perfect strategy. Preserving and accumulating assets requires a thoughtful approach that considers several different factors and is ultimately guided by an individual’s unique financial goals.

As you work with your investment advisor to define and direct your wealth management strategy, be wary of these common misconceptions.

My portfolio is underperforming because it is lagging the S&P 500.

Measuring your portfolio solely against the S&P doesn’t necessarily provide an appropriate benchmark of performance. Rather, using a targeted rate-of-return approach based on your unique financial objectives may more suitably measure your portfolio’s performance in the long term. As part of this approach, individuals should prepare for a long-term outlook to more accurately benchmark against financial targets. A three-to-five-year long-term rate-of-return is advised.

I should only be in U.S. stocks and bonds.

Regardless of what type of investments you’re considering, realize that the word ‘only’ may equate to greater risk. A globally diversified approach to managing your portfolio may mitigate some of that risk by avoiding extreme concentrations and by expanding the breadth of your investments across a variety of asset classes and countries.

Return is everything.

Speaking of risk, it shouldn’t be dismissed when you’re thinking about returns. The goal of a portfolio should be to achieve a targeted rate-of-return with the least possible risk. When creating your portfolio, consider how you may be able to protect yourself in a down market while also participating in the upswing. Your investment manager can help you devise a strategy that works toward your specific targeted rate-of-return while also accounting for potential risk scenarios.

My investment manager should garner the best return possible and let my accountant worry about the taxes.

Again, focusing solely on return may not be the wisest approach. It’s important to consider the additional financial implications of your investment strategy, including taxes and fees, to create a portfolio that best aligns with your financial goals. An investment strategy that results in increased fees and/or taxes simply strays from accomplishing your ultimate economic objectives.

XX has performed poorly. I should sell and use the cash to buy something performing better.

This brings us back full-circle to the idea of a long-term, targeted rate-of-return approach. Following the S&P 500 and/or making investment decisions based on short-term losses or gains will likely only lead to additional stress on your part. Designing a strategic, long-term approach to investment management can lead to greater potential for a financial solution that ultimately meets customer objectives.

To understand more about MFA’s investment management philosophy or to speak with one of our team members, please connect with us.

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Melissa Santas Peterson

Melissa Santas Peterson

Partner & Chief Investment Officer, Wealth Management Practice

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