8755 W. Higgins Road, Suite 200
Chicago, IL 60631
773.867.3657
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The Planning Process: Investment Planning

Investment Planning & Coaching:

Goal-Focused and Planning-Driven

1.       Have a plan.  How can you hope to achieve important goals…and dreams…without one?  The only rational medium for an advisory relationship  – and the only basis for an investment portfolio – is a financial or retirement plan.  The plan is not the most important outcome.   The thinking and consideration of alternatives that occurs during the planning is where the value is. 

2.      Performance:   We believe that investment out-performance is not a financial goal.  An increasing lifetime income that you cannot outlive is a financial goal.   Leaving a legacy to those people or institutions you care about is a financial goal.

3.       We Don't Predict the Future:  The economy, the markets, and the future relative performance of similar investments can’t consistently be predicted.  In practice, the only way to capture the full permanent return of equities is to be willing to sit through their temporary volatility.

4.       Asset Selection:  We will select investments for your portfolio that offer consistent management, good historical returns, low fees and, sometimes, the possibility of excess performance.   Please understand that no one can deliver market-beating investment performance consistently.

5.       Risk – understand what risk is and what it is not.  Risk is not volatility – unless you sell at the wrong time.  Volatility is the reason that equities provide a superior return over the long term- far above the return of fixed income assets.  Risk is the possibility of the permanent loss of capital and having a declining income during retirement and outliving your money.   We take advantage of volatility and coach you to avoid the mistakes that create true risk.

6.       Investment Decisions – we provide you with a broader historical frame of reference and do not fall victim to the recency bias that you is inflicted upon you by the everyday media.  The dominant factor in long-term, real-life financial outcomes is not investment performance, it is investor behavior.  And my primary value to investors is as a behavioral coach.

7.       Risk Tolerance Questionnaire and Questioning.  We have learned that people’s risk tolerance increase in a rising market and, conversely, drops off the table in a declining market.   We’ll help you take an appropriate amount of risk without succumbing to the panic and euphoria of market bottoms and tops.  As we get to know you better, we’ll develop a more complete sense of the amount of volatility you can bear with your investments.

8.       Asset Allocation:  The long-term mix of equities versus fixed income and cash is probably the most important decision for your portfolio's long-term performance.  The more ambiguity you can tolerate, the more equities you can own.   The greater the need for certainty of return, the more fixed income you would own.  Equities have a superior long-term performance record than does fixed income.

9.       Diversification:  Since we cannot know what sectors are going to be hot or fade, we will diversify your portfolio among assets classes such as Large-Cap, Mid-Cap, Small-Cap, International, Emerging, Real Estate and Fixed Income.  Our Investment Strategy team provdes capital market assumptions upon which the allocations will be based.  Our goal is to not own so much of any one asset so as to make a killing nor be killed.

10.       Trust:  The only sustainable basis for a successful client/advisor relationship is perfect mutual trust.  I will tell you the pure, undiluted truth – as I am given the light to see the truth – all the time.

 

If achieving your important goals is your intention and if our investment process and philosophy sounds worth exploring further, please use the Contact Us link at the top of the page or give us a call at 773-867-3657 or email us at Michael.Magnuson@LFG.com.

 

Diversify beyond investments

Diversification alone may not be sufficient to protect your investments. By taking a broader view, a financial planning strategy can put safeguards in place to help protect yourself and your family.

For instance, purchasing disability income insurance provides protection for your ability to earn a living. Life insurance is another form of protection. It can help preserve your estate assets and reduce the risk that a disaster could wipe out your family's standard of living. Life insurance can also provide the necessary cash for your survivors to pay estate taxes and other expenses, or to carry on a family-owned business.

A properly planned estate can also be a part of your overall strategy. Simply having a will may not be enough. You may need to coordinate your will with trusts for your children, life insurance and estate tax planning. Estate planning can help preserve and direct the distribution of your assets after your death.

A diversified financial planning strategy will not eliminate risk or guarantee success. But it does offer an approach to help protect your assets, reduce risk and potentially grow assets over time. Talk with a qualified professional about how to put an effective financial planning strategy in place.

You've heard the old investment adage, "Don't put all your eggs in one basket." It's good advice. A diversified portfolio should be at the core of any well-planned investment strategy. While a worthy goal at any age, it's especially desirable as your net worth grows over the years. The basic purpose of diversification is to reduce risk and volatility. It's primarily a defensive type of investment policy. Depending on your investment goals and tolerance for risk, your strategy may emphasize one type of investment over another. But overall, your investment plan should be diversified. That's because no single type of investment performs best under all economic conditions. A diversified program is capable of weathering varying economic cycles and improving the trade-off between risk and return. Of course, diversification cannot entirely eliminate the risk of investment losses. Diversification offers returns which are not directly related over time and is intended for the structure of a whole portfolio to help reduce the risk inherent in a particular security.

Forms of diversification

An investment portfolio consisting of twenty different construction industry stocks is not diversified. Diversification means dividing your funds among different classes of assets, such as stocks, bonds, real estate, savings accounts and tangible assets. For instance, suppose your portfolio consisted entirely of bonds. Your money would be at significant risk if interest rates rose since bond prices generally fall when rates go up.

A prudent investor managing his own portfolio might diversify his holdings by selecting some stocks for their rising earnings or accelerating "growth" potential while buying other stocks because they offer "value" by temporarily being out of favor. In addition, an investor may buy individual securities for other reasons, such as income or tax advantages.

An alternative to selecting and managing individual stocks and bonds is to invest in mutual funds. Some mutual funds offer diversification by holding many securities within the portfolio. However, some other funds may not be diversified across industries or asset classes and may focus on a single sector. Mutual funds offer several other features, including:

  • Funds have clearly defined objectives and strategies, which are detailed in the fund's prospectus. A prospectus contains more complete information on the style of investment objectives you should expect in addition to the charges, expenses and risks the fund may incur. Read the prospectus carefully before investing. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares when redeemed may be worth more or less than the original amount invested.
  • Shareholders receive periodic reports reviewing the fund's results and performance.
  • Funds are managed by full-time professionals.
  • Fund families allow investors to allocate investment dollars among a combination of funds with varying objectives.

Diversification also means not tying up all your funds in long-term investments. You'll need to keep a certain amount easily accessible -- that is, in money-market accounts, savings accounts or short-term certificates of deposit (CDs) -- for on-going expenses, emergency needs, and short-term goals such as saving to buy a car or pay taxes. And through dollar-cost averaging, a process of buying stocks and bonds from time to time instead of all at once, you can spread the risk over both good and bad markets. Using this investment method involves continuous investment in securities regardless of fluctuating price levels of securities. Therefore, investors should consider their financial ability to continue purchasing through periods of fluctuating price levels. Dollar cost averaging does not ensure a profit and does not protect against a loss in declining markets. Diversification is also important because CDs are FDIC-insured and typically offer a fixed rate of return while investments such as stocks and bonds are not FDIC-insured and their value will fluctuate with current market conditions.