How we manage investments

Determining the investment objective

Before any investment is chosen, we identify what the money is for, the investment timeline, the risk tolerance, the tax treatment of the account, and the income the client needs from it. The timeline and risk tolerance set the investment objective.

Risk profiles

Each profile is a range, not a fixed mix. Exact percentages vary over time as markets move and as we rebalance. The ranges below are from the written investment policy statement for each account. Every account also holds some cash or money market, so no account is ever exactly 100% in any one class.

Allocation construction

Most accounts use one of our models. The model depends on the objective and on the tax treatment of the account: an IRA is tax-deferred, a Roth is tax-free, and a taxable account is taxed as it goes. The same objective can look different in each one. Where no model fits, we build an allocation for that client's situation alone.

The models hold exchange-traded funds and some mutual funds. Allocations built for one client can also hold individual stocks or bonds. We use funds for broad exposure and individual securities where research supports a specific holding. Every holding is researched first and held only if it fits the objective and the plan.

Investment selection

In most accounts, we make the investment decisions. We create, review, and update the models. A model serves as a starting point, appropriate only after the client's goals, time horizon, risk tolerance, and outside holdings are understood. Every allocation is stress tested, and every holding is scrutinized using our research, LPL research, and other independent research providers. When we add or remove an exchange-traded fund or mutual fund from a model, we consider the fund manager's qualifications, the fund's underlying holdings, expenses, and performance. When we build a personal portfolio with individual stocks or bonds, we consider the company's financial strength and valuation, and for bonds, the issuer's credit quality, yield, maturity, and interest rate risk.

Our clients have the final say in the investments they own. They can choose from our models, substitute any holding they'd like, or work with Ed to build a portfolio from scratch. Accounts are fully customizable when it is appropriate and the client wants it.

Benchmarks

Each account is measured against a benchmark that fits its objective. The default is the LPL Standard Benchmark: a blend of the Bloomberg Barclays U.S. Aggregate Bond Index, the Russell 3000 Index, and the FTSE 3-Month Treasury Bill. The mix shifts toward stocks as the objective gets more aggressive. A different benchmark is used where the objective calls for it. The benchmark is the yardstick, not the goal. The goal is the plan.

Monitoring and rebalancing

We monitor the account's investments and overall performance. We take a long-term view, so an ordinary short-term move does not by itself change the plan. A sharp move that pushes an allocation beyond the stated goal may warrant rebalancing. At least once a year, we review the account and rebalance it to its target allocation when it has drifted. Systematic rebalancing can be set monthly, quarterly, semi-annually, or annually. The interval sets the review schedule, not a requirement to rebalance. Account rebalancing can also happen in the moment when a move warrants it.

The client receives regular statements and a confirmation of every transaction. When a client's circumstances, time horizon, or tolerance for risk changes, we review the objective to determine whether it still fits.

A part of our process is keeping our clients informed and up to date. Clients reach Ed directly whenever they have a question or would like to review their accounts with us. At a minimum, we ask clients to participate in an annual account review. Reviews can be held in person, virtually, or by phone.