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Vanguard’s Jim Rowley argues that investors should use indexing to create an active-passive portfolio, and decrease volatility risks. Adding passive funds can help broaden diversification, lower costs, and increase tax efficiency. “We know that investors are a lot less happy during those periods of underperformance than they are happy during the periods of outperformance,” Rowley said. “So by adding indexing … that leaves you with a portfolio that still has the opportunity to outperform, but from a risk management perspective, it might shrink in those extreme periods.”
Impact Investing Is Making Its Way Into Mainstream Planning (InvestmentNews)
Big-name financial institutions such as Goldman Sachs, Morgan Stanley, JPMorgan, and UBS have begun to pursue impact investing and this trend will start impacting client decisions, according to William Burckart, managing director of Impact Economy. “Advisers who don’t believe impact investing will play a meaningful role in their own client strategies aren’t seeing the writing on the wall. Investing for meaningful impact will become part of mainstream planning and, in fact, will be the core portfolio for many next-generation investors who stand to inherit upwards of $US41 trillion in baby boomer wealth,” wrote Burckart in an InvestmentNews column.
“A 2013 study by the World Economic Forum found that next-generation investors consistently ranked impact performance as their primary investment criterion, ahead of return,” he wrote. “As individuals and institutions look to the financial services industry to supply — and financial planners to advise on — financial products and strategies consistent with these broader goals, firms will have to figure out how to serve a new set of client demands.”
Taking On a Younger Client With Low Assets Can Be A Good Idea (Wall Street Journal)
Even if a potential client only has $US25,000 in assets, turning him or her away could be a bad idea. Richard Rosso of Clarity Financial LLC explained that aside from assets and earning potential, savings habits and influence are great indicators of when to take on a new client. “If a client has good habits on both sides of their ledger, they’re going to be successful. That’s why savings and debt behaviour makes up 40% of my assessment of new young clients,” Rosso said.
“What someone earns at their job is an outcome you ultimately can’t control. Far more important to me is a client’s ‘center of influence’ potential — who they know, how they network, and the other young people they associate with,” he said. “I want clients who are going to share the work we do together and to share my advice. In that way, I can extend my sphere of influence to an entire social circle. All of those factors drive that client’s referral potential and increase the value of our partnership.”
How To Use Introversion To Your Advantage In Financial Planning (Nerd’s Eye View)
Michael Kitces debated against the need to be extroverted to be a successful financial planner in his blog, Nerd’s Eye View. “In fact, arguably the introvert’s preference for seeking out one-to-one relationships may actually make them especially good financial planners, able to connect with and bond with their clients — though for many, the process of “prospecting” and getting clients in the first place may be more challenging,” Kitces said. “… When introverted people are especially drawn to a cause or purpose (a ‘personal project’), they can be quite extroverted for a period of time in pursuit of their goal (though it is still draining to them and will eventually leave them wanting some alone time to recharge).”
Plan For Retirement By Calculating Debt, Not Assets (Morningstar)
Instead of figuring out how much you need at the time of retirement, figure out how much debt you need to pay off beforehand, columnist John Rekenthaler wrote for Morningstar. At the Morningstar Investment Conference, Michael Falk challenged an ING advertisement asking how much people will need in assets when they reach retirement. “To state the matter in reverse, the lump-sum at retirement that is required to fund $US1,100 of monthly spending, assuming a 4% withdrawal rate, is $US320,000. For the millions of households that currently have almost no savings at all, retirement or otherwise, that number will look daunting. But a lot less daunting than what is currently being shown to them,” Rekenthaler said.
“Moreover, argues Falk, retirees can shrink even these lowered lump-sum amounts,” Rekenthaler continued. “Consider, for example, a worker who retires at age 70 and buys a deferred annuity that begins 15 years later. This annuity, which would cost pennies on the dollar, will be used to pay discretionary expenses from age 85 onward, thereby slashing the investment time horizon to 15 years. The investor can therefore safely increase the withdrawal rate (although carefully and cautiously in the first few years, to defend against the possibility of an early bear market).”
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