Our financial planning philosophy at SNE begins with a very high level approach to your planning needs, becoming more technical as specific needs crop up. Our approach is analogous to changing your diet or exercise activity when your goal is better fitness. The biggest gains you're going to make in changing your diet is cutting out junk and highly processed foods by switching to whole or fresh foods that are "good for you". The biggest gains you're going to make in exercise is when you increase the frequency and intensity of whatever you are doing for physical activity. The goal is better health and fitness, the specific diet and exercise programs are the implementation part of reaching your goal. Likewise, the biggest gains you're going to make financially is when you first set a plan to reach your goals and then implement all of the high level components of the plan while "fine tuning" on specific areas over time.
The high level basics in financial planning are:
- Risk mitigation (i.e. proper insurance coverage and proper investment diversification)
- Budgeting and cash flow management
- Retirement accumulation phase
- Retirement draw down phase
- Estate planning
The above are the basics. We become more technical once the plan is defined and the basics are being addressed.
The most common questions people come to us searching for help are:
- Am I saving enough for retirement?
- Approximately how much annual income will I have when I retire?
- How soon can I retire?
- When is the best time for me to begin collecting social security?
- Will I outlive my retirement savings with my current draw downs (i.e. my current lifestyle spending)?
- What is the best plan for passing on my (our) wealth to the next generation?
- Am I at risk of losing my money in the markets?
There are many more questions people have, but the above are the big ones.
We have the software and expertise to assist you in establishing financial plans ranging from the simplest to the most complex depending on your situation. With our technology and expertise we can answer those most important questions you may have.
I would like to discuss comprehensive Financial Planning
Management fees, commissions, account maintenance fees, taxes, these are real costs that can significantly reduce income and growth in your investment accounts. The effects of high costs and high fees can add up to large sums of money over time, lowering monthly income distributions in retirement or capital growth during your wealth accumulation phase. As consumers we often compare costs when shopping for large ticket items or we compare prices at competing local or online retailers. But strangely, as investors many often don't compare costs, don't know how to compare costs or are limited by high cost investment alternatives in retirement accounts such as a 401k and 403b.
Did you know that most actively managed mutual funds under perform the broad U.S. stock market as represented by the Standard & Poor's 500 index (the S&P 500) while charging you between 0.5% and 2%+ annually for that under performance? And wrap fee programs for separately managed accounts at most brokerage and wealth management firms can cost you up to 2% annually. Did you also know that, as of this writing, the cost to you of a passive S&P 500 index fund can be as low as 0.03% of your account balance annually or as high as 2.33% annually depending on which fund company you choose? Same index fund constituencies...different costs...different results!
As an investor it is so important to identify the costs you are incurring in your investment accounts. SNE Investment Advisers is proud to provide our Cost/Fee Analysis service to investors that are not current clients of our firm. Current clients of our's will have already gone through this analysis because it is one of the first steps in our on-boarding process as a new client. The Cost/Fee Analysis is a comprehensive review of the total costs you are incurring in your accounts, detailing the specific cost components while suggesting lower cost alternatives offered in 401k and 403b retirement accounts. This one-time service begins at $300 depending on the complexity and number of accounts and this service fee is waived if you become a client of ours as a result of this service. To understand just how valuable this service is, if you have a single investment or retirement account of around $100 thousand, the Analysis would likely pay for itself in less than 6 months if you are incurring industry average costs. If your account balance is larger, the payback and value proposition is even faster and greater. And this service becomes even more valuable with larger and more complex portfolios because of the services' ability to scale.
As an example of just how much of an impact fees and costs can have on your money over time, consider the graph below showing beginning and ending account balances under high, average and low cost alternatives. The graph, produced by the U.S. Securities & Exchange Commission, depicts the growth of a $100K investment over 20 years under high, average and low cost alternatives earning 4% gross annual returns before fees. The difference in account balance is $30K between the high and low cost alternatives and is entirely attributable to fees and costs which lower the annual gross return on investment.
If your current broker or investment adviser has not provided an all-inclusive fee and cost analysis on your investment accounts, or if you wish to conduct a review as a second opinion, please feel free to reach out to us for our Cost/Fee Analysis. We would be happy to meet with both you and your broker/adviser to discuss the results.
I would like to discuss a comprehensive Cost/Fee Analysis
The simplest definition of risk is the potential loss of life, personal injury, damage to property or loss of value. Risk is a detrimental consequence from unforeseen or uncontrollable events. Risk can be mitigated on a sliding scale of 0-100% with actions, use of contracts and/or precautions taken to avoid negative events. In the context of investing, investment losses cannot be totally mitigated but can be controlled through asset class diversification and through other means.
Risk is an important concept and consideration when it comes to investing. Generally speaking, the greater risks you take while investing, the greater is the potential for higher investment return. On the flip side, the greater the risk taken, the greater is the potential for investment loss. When viewed through the prism of time, diversified risk taking will tend to increase long-term returns on invested capital.
Investment risk is often viewed differently by different people or institutions. Academia and most financial institutions view risk as the volatility of investment returns relative to a broad index of stocks or relative to a risk free rate of return. Other investors will view risk as a permanent loss of investment capital such as a bankruptcy or the loss in value of a business due to industry disruption or decline. This permanent impairment concept of risk implies the investment or business will no longer generate meaningful compounding returns into the future.
How is investment risk defined for specific individuals or institutions? We do this through a risk assessment process that begins with a risk profile analysis. The analysis has two major components, each different from one-another and they are; 1) your risk capacity; and 2) your risk tolerance. Risk capacity is your ability to take on risk given your financial resources and financial objectives while risk tolerance is your emotional and behavioral ability to deal with psychological and emotional incursions. For example, you may be in your 90s, have a large, liquid estate valued at millions of dollars and have no heirs or desire to leave money to any particular charity. If you live very frugally, are very conservative and cannot cope with the idea of either spending nor losing money, you would have a high capacity for risk but also have a low tolerance for it. As another example, if you are in your 60s barely getting by on social security and modest income from a stock and bond retirement portfolio, you're in excellent health and could conceivably live another 20-30 years, you have a low capacity for risk regardless of your tolerance for it.
We gauge risk capacity and tolerance through a numeric scoring process designed to elicit responses to various financial scenarios. The responses to the questions results in numerical scores for risk capacity and tolerance which will then be used as a basis for discussion and helps us in portfolio construction and monitoring.
Please send me a Risk Assessment Questionnaire
Portfolio Construction and Portfolio Monitoring
In addition to financial planning, tax planning, Social Security and estate planning, asset allocation and portfolio construction and portfolio management is a very important component in personal finance. Portfolio construction and the portfolio monitoring process is critical in achieving long-term financial goals during wealth accumulation and is critical in maximizing incoming during retirement. Your portfolio construction and asset allocation is dependent on your current financial position and financial goals within the confines of your risk capacity and tolerance.
At SNE, we follow three main investment strategies in portfolio construction and ongoing portfolio monitoring for our clients. The three main strategies are; 1) income, 2) low cost passive equity, and 3) active value and we will go into greater detail explaining these strategies elsewhere on this site and even greater detail in our brochure filed with Regulators. These strategies are not mutually exclusive and we can mix any of the three in your portfolio given your goals, risk capacity and risk tolerance. For example, you may be interested in maximizing income while minimizing taxes on that income. An income strategy including in-state municipal bonds, U.S. Treasuries and liquidating dividend investments may be the right solution. Or you may have no desire for current income but wish to maximize capital growth in which case we can construct a diversified global portfolio of low cost exchange traded funds (ETFs) prioritizing tax deferred or tax efficient capital appreciation. Or you may be an "Accredited Investor" defined by the SEC (U.S. Securities and Exchange Commission) and want a portion of your investments allocated in a concentrated portfolio of stocks selling below intrinsic value while offering the potential for high asymmetric returns relative to downside risks. In this case, an allocation toward an active value strategy could be a solution or maybe an active value strategy combined with a low cost passive equity strategy.
Constructing a portfolio is only part of an ongoing investment program. Ongoing monitoring of the portfolio in the context of shifting global equity markets and changes in yields on fixed income and higher-yielding investments may require occasional adjustments and/or rebalancing of assets in your portfolios. We are constantly monitoring changes in yields on fixed income and higher-yielding investment alternatives in order to optimize income for clients in our income strategies. We are always monitoring the global universe of low cost equity ETFs to ensure that clients in our low cost passive equity strategies are efficiently capturing global equity returns over time and in a diversified manner. And we spend countless hours analyzing opportunities for inclusion in, or expulsion from, our active value strategy.
I want to learn more about SNE's Portfolio Construction and Monitoring
SNE Investment Advisers, LLC
70 Perry Hill Road
Acushnet, MA 02743
The information contained in Southern New England Investment Advisers, LLCs (SNE's) website are of a general nature and is for informational purposes only and does not constitute financial, investment, tax or legal advice. These materials reflect the opinion of SNE's Management on the date of production and are subject to change at any time without notice due to various factors, including changing market conditions, regulations or tax laws. Where data is presented that is prepared by third parties, such information will be cited and said sources have been deemed reliable. Any links to third party websites are offered only for use at the site visitor's own discretion. SNE's Management is separate and unaffiliated from any third parties listed herein and is not responsible for third party product, services, policies or the content of third party websites. All investments are subject to varying levels of risk, and there can be no assurance that the future performance of any specific investment or product referenced directly or indirectly in this website will be profitable, perform equally to any corresponding indicated historical performance levels or be suitable for the individual reader's investment needs. Past performance is not indicative of future results.
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