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"Value Added" Part 1 - The Financial Plan

Our Value Added IndexingTM approach to investing has several aspects above and beyond using index and market tracking funds to build portfolios.  As part on an ongoing series, we're pleased to highlight several of our "Value Adds". 

Part 1 looks at designing and implementing a Financial Plan.

We begin by listening

A successful financial plan always begins with listening. It allows clients to articulate their goals and gives us a comprehensive understanding of their resources and financial situation. Planning enables us to address our clients' most important issues:

How do we be sure we will not outlive our money?

Can we maintain our lifestyle during our retirement years?

How much risk should I be taking?

What amount can I spend from my portfolios?

Financial planning, at its most basic, incorporates decisions regarding saving, spending, and investing.

Looking at the investing piece, research shows that the most significant determinant of long-term returns is the asset allocation decision - how a portfolio is allocated among different areas of the markets, stocks, bonds and cash.*

In determining an asset allocation for client portfolios, we ask three questions:

•    What is your time horizon?

•    What is your need for liquidity?

•    What is your tolerance for risk?

Longer time horizons allow for increased stock exposure as investors can “ride out” the inevitable down periods.  If an investor is taking significant distributions from a portfolio for spending, etc., it’s important to have more balance, as cash and bonds add stability.  And risk tolerance, the ability to “sleep at night” and not panic over stock volatility, is an important consideration as well.  

The Financial Goal Plan

Once we have determined an appropriate asset mix, we then create a customized financial plan that incorporates assets and liabilities, savings, spending, and other cash flows in and out.  Our leading-edge financial planning methodology incorporates simulations ("Monte Carlo" analysis) to estimate the likelihood of achieving specific goals over time.  We'll often model several different scenarios - looking at the impact of retiring sooner rather than later, or comparing alternate spending levels during retirement.

Clients often ask about specific "wishes".  Can they afford a vacation condo?  What if they increase spending for the first decade of retirement as they contemplate increased travel?  How does planning for longevity affect their lifestyle today?

Our objective is to implement a plan – both asset allocation and spending strategy - that offers a very high probability of success.  The benefit for clients is the peace of mind that comes from knowing they are on track to achieve their goals.


* Vanguard Investment Counseling and Research, "A primer on tactical asset allocation strategy evaluation", 2010

The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.