Conscientious Financial Planning and Retirement Income Management | 201-741-9528
from Lonier Financial Advisory LLC, Osprey, FL

Prudent Investment Management

Once your personal balance sheet and goals are well understood and you have a financial plan, you’re ready to become a Prudent Investor. Prudent Investors take the least amount of risk necessary to safely achieve their goals. Investing is largely about managing risk to gain reasonable rates of return.

Too often investors begin by focusing on maximum returns and growth, often by looking at recent market high performers, blind to the volatility risk inherent in high beta risk assets.

Higher risk—volatility—doesn’t necessarily mean higher gains. If you’re lucky, you may catch a big up swing. But you could just as well get pulled way down. The law of compounding makes it harder to recover from a deeper loss than a smaller one.

This is why portfolios with lower overall risk often out perform risky growth strategies over the long term. Higher risk ultimately means, quite simply, higher risk, not investment success.

So how does a Prudent Investor invest?

Your investment portfolio doesn’t stand by itself. It’s part of your full personal balance sheet, including current and future income, home and real estate equity, employer-provided benefits, government benefits (social security), your mortgage, loans, and debts, and large expense goals like college tuition. Your investments need to be risk-managed in the context of all the risks bearing on your total economic situation.

[blockquote type=”blockquote_line” align=”left”] Studies show portfolios with a mix of asset classes produce higher returns over the long-term than portfolios that are heavily weighted in one or two assets or asset classes.[/blockquote]

If you’re in a volatile industry or feel your job is at risk, then your investment portfolio should shift towards risk-off—not the other way! If you don’t anticipate having a large government annuity (Social Security) or corporate pension, then you should build income into your portfolio, again, a risk-off strategy.

As a Prudent Investor, you want to support your lifestyle and reach your goals with as little overall risk as possible.

I’m Michael Lonier, the owner of Lonier Financial Advisory LLC. I start with understanding your resources and your goals, and create a total financial resources plan so you can see how all the pieces of your financial life fit together.

How best to structure your savings and investments? How much will you have, will you need, for a retirement that might last 35 years? How much is enough?

Once we’ve worked through these questions together, we are ready to build a Prudent Investment Portfolio that is well-suited to you. One that aligns risk-adjusted return with your goals, your plan, and your level of comfort.

Studies have shown that managing risk within a portfolio through strategic asset allocation is the most significant factor affecting investment returns over the long-term, far outweighing individual security selection and market timing. The balance between risky growth asset classes and less-volatile income asset classes in your portfolio is crucial to achieving the returns your goals require while managing risk consistent with your profile. This is Prudent Investment Management.

Long-term growth through the efficient, low-cost investment in equities protects your purchasing power. Even retirees, with today’s longer life expectancies, may need a growth component in their portfolio, though pre- and early retirement is an important time to guard against losses (it’s never a good time to lose money!). Owning equities exposes you to market and business risk, so risk management is crucial.

Income investments provide a steady, lower-risk flow of current income. They balance the market and business risk of owning equities, protecting some part of your portfolio principal while providing current income and improving overall return. Over time, the value of that income stream will decline from the effects of inflation, providing less buying power for food, gas, and other necessities, hence the need to balance with growth assets.

Throughout your lifetime, the balance of risk and income assets in your investment portfolio will change, reflecting both the portfolio’s growing value and changing risks bearing on your personal balance sheet.

This lifetime risk rebalancing is part of your full lifecycle financial plan and is a key part of prudent investment management.

A large industry has grown up around financial services, one that imposes high costs and fees on investing that reduce your returns. I provide smart, full lifecycle financial planning and prudent investment management at a low cost to you—a fraction of the fee of typical financial advisors. This low cost reflects the efficient and prudent methods I use to build and manage portfolios.

I use low-cost exchange-traded equity index funds to construct the growth component of your portfolio, following the investment policy statement we agree on as part of your financial plan. The income allocation within your portfolio is a long-term stable platform for current income. Once invested, the income stream remains steady, regardless of price changes in the underlying securities. This approach minimizes your trading and carrying costs.

I use software tools to model statistically probable outcomes in your full lifecycle financial plan and in the design of your investment policy statement and portfolio. These help ensure that your plan is both efficient and prudent.

Although my strategies manage risk across your full personal balance sheet, I cannot eliminate risk or the possibility that some or all of your investments will lose value. No one can guarantee the performance of your investments. Which is why as a Prudent Investor, you should never take on more risk than a prudent plan to achieve your goals requires!

Contact me now, via email, the contact form, or phone (201-741-9528). We can talk about your financial plan, your concerns and goals, and how I can help you make better choices. There is no charge or obligation for these initial discussions.