Investment management is the process of selecting from all available mutual funds, securities, and other investment instruments. Only a handful will wind up being used in a typical client account, where an advisor will determine the most appropriate percentage allocation and monitor the performance over time. Read more about each of these processes below:
Step One: Determine an Appropriate Asset Allocation
Asset allocation, the ratio of equity investments to fixed income investments, is the single most important factor in determining the risk and return characteristics of a portfolio.
Making appropriate asset allocation decisions is based on an accurate assessment of the following client-specific considerations:
- Individual risk tolerance/risk capacity
- Progress towards financial goals
- Time horizon
- Portfolio objective
- Investor preferences
- Tax and other financial planning considerations
Step Two: Investment Selection
At Harvest Financial our investment selection is based on both qualitative and quantitative factors including the following:
- Investment objective and philosophy
- A well-defined investment process
- Investment results in varying market conditions
- Assets under management
- Tax efficiency
- Fund expenses
- Risk and volatility considerations
- Correlation with other portfolio holdings
- Investment consistency
- Biblical moral standards evaluation
Step Three: Monitor, Rebalance, Reassess and Adjust
Portfolio management is an ongoing and dynamic process. Listed below are four distinct components of the ongoing portfolio management process we use at Harvest Financial.
Monitoring involves evaluating client specific, investment specific and market specific factors on an ongoing basis. Effective portfolio management requires proactive client communication, extensive awareness of portfolio investments and an ability to assess a changing economic and investment landscape.
Rebalancing is a key element in the Harvest portfolio management process. As the financial markets ebb and flow, in order to maintain an investor’s risk/return profile it is necessary to reallocate among asset classes (stocks versus bonds). Academic studies have indicated that portfolio rebalancing is an effective way to control portfolio risk over time.
Reassessment is the periodic process of evaluating the investment structure of a portfolio in the context of a client’s overall financial plan. Reassessing requires ongoing meetings and an open line of communication between the client and advisor.
Adjustments are made to client portfolios for a variety of reasons. Fundamental changes within a mutual fund (investment philosophy changes, manager changes, etc.) may result in reduced exposure or even elimination of a fund. Identifying funds with a more favorable outlook may cause us to swap one fund for another. Investment changes are also made due to client specific factors such as a change in risk tolerance or a life change (like deciding to retire).