WRITTEN WEALTH PLANS
Our planning starts with a written, goal-based plan. We spend quality time with you to ensure we understand your investment goals. Once the goals are identified we work backwards from end goals to the present in determining the appropriate strategies to accomplish the goals. We simulate thousands of possible lifetime-return scenarios to provide the highest statistical probability of attaining your financial goals. Then we provide a written summary of the plan which will serve as our road map to arrive at your goals.
There are multiple ways to measure the correct amount of risk in your portfolio. Rather than focus on just one, we implement several.
Risk Tolerance – the amount of risk a client “willing” to take. This quantitative and objective approach to risk is built upon decades’ worth of behavioral economic studies culminating in prospect theory, the leading economic theory of risk-reward decision-making that won the Nobel Prize in Economics. With a quantitative risk questionnaire, clients answer a series of questions that determine when they prefer risk and when they prefer certainty.
Risk Demand – the level of risk that “needs” to be taken in order to accomplish the goals set by the client. We use Monte Carlo Simulations to run as many as ten thousand random sequences of actual historical returns to create a “success rate."
Risk Capacity – the pure statistical risk measured by deviation form an expected outcome. This is the most commonly used measurement but only describes volatility over a large period of time.
RETURNS ARE RELATIVE
All clients will have Probability of Success measurement that we routinely monitor to measure your progress. We believe is returns are relative. The appropriate return is one that accomplishes your goals with the least amount of risk. A 20% return that fails to accomplish your goals is a failure. However, a 6% return with a high probability of achieving your goals is clearly a success.
Most financial advisors are focused on selling products. Thus goal based plans often neglected or simplified at best. If you don’t have a written financial plan, you don’t have a plan.
The few investors that have written plans have utilized an antiquated method based on a simplistic view of the market. This method assumes the market yields the exact same return year after year. Such an unrealistic assumption does not account for the volatility of the market and can lead to false-positive results.