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.
Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice.
The information contained herein should not be construed as personalized investment advice. Investment in securities involves the risk of loss, and past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this document will come to pass. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that your portfolio will match or outperform any particular benchmark.
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