{"id":119103,"date":"2023-11-13t11:55:05","date_gmt":"2023-11-13t16:55:05","guid":{"rendered":"\/\/www.g005e.com\/?p=119103"},"modified":"2024-08-27t17:00:40","modified_gmt":"2024-08-27t21:00:40","slug":"why-you-should-function-as-a-fiduciary","status":"publish","type":"post","link":"\/\/www.g005e.com\/2023\/11\/13\/why-you-should-function-as-a-fiduciary\/","title":{"rendered":"why you should function as a fiduciary"},"content":{"rendered":"

\"\"<\/p>\n

 <\/p>\n

diversify and figure out which assets not to own.<\/strong><\/p>\n

by anthony glomski
\nyour $5 million high-net-worth practice<\/em><\/a>
\n<\/i><\/p>\n

the first thing you and your clients should understand as investors looking to make smart financial decisions is this: the broad asset classes<\/strong> you choose to own (such as stocks, bonds, alternatives, real estate, private equity and so on) and the percentage of your household wealth that you allocate to each of those asset classes will have a greater impact on your future investment returns<\/strong> than any<\/strong> other decision you make \u2013 including which individual stocks you buy.<\/p>\n

more: <\/b>how to flip the switch to wealth preservation<\/a> | how to outline your client\u2019s big picture<\/a> | your entrepreneurs need advice, but which kind?<\/a> | three ways to work together on wealth<\/a> | how to implement collaborative wealth management<\/a> | five challenges of liquidating a business<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

this means your first question as intelligent investors must be: how should i allocate my assets among the major asset categories?
\n<\/p>\n

\u201cninety-seven percent of performance variation is due to asset class structure.\u201d
\n\u2013 eugene fama, economist and nobel laureate in economics<\/em><\/p><\/blockquote>\n

this is the single most important investment decision to be made. if it is done correctly, you should know the approximate return to expect from a given portfolio over the long run, and what a 2008-style scenario would look like in terms of drawdown and the amount of time needed to get back to even. it is this knowledge that enables you to help clients tune out all the noise that surrounds them and remain consistent in their approach without succumbing to emotion.<\/p>\n

vanguard\u2019s john bogle famously said, \u201cbuy right and hold tight. once you set your asset allocation, stick to it no matter how greedy or scared you become.\u201d<\/p>\n

indeed, clients sometimes ask us what our plan is for dealing with the latest troubling headlines or a downturn in the stock market. our answer is always the same: the plan \u2013 driven by our investment philosophy statement (ours is about 42 pages long) \u2013 was established up front when we determined the appropriate asset allocation for you and your family.<\/p>\n

\u201cthe most important thing about an investment philosophy is that you have one you can stick with.\u201d
\n\u2013 david booth, founder, dimensional fund advisors (dfa)<\/em><\/p><\/blockquote>\n

ask your clients to think of their household as a new business. their \u201cmain office\u201d is now their family office.<\/p>\n

therefore, it makes sense to examine how other successful families tend to manage their wealth. one broad survey of single-family offices reveals that high-net-worth families allocate their investable assets as shown in the table below. this data can be a good starting point<\/strong> from which you and your clients can make their own family office asset allocation decisions. again, no two families have exactly the same needs and goals.<\/p>\n

 <\/p>\n\n\n\n\n\n\n\n\n\n\n\n
\u00a0<\/strong><\/td>\ntarget allocation<\/td>\n<\/tr>\n
stocks<\/td>\n44%<\/td>\n<\/tr>\n
bonds<\/td>\n15%<\/td>\n<\/tr>\n
hedge funds<\/td>\n14%<\/td>\n<\/tr>\n
private equity<\/td>\n9%<\/td>\n<\/tr>\n
real estate<\/td>\n9%<\/td>\n<\/tr>\n
other tangible assets<\/td>\n4%<\/td>\n<\/tr>\n
principal company investments<\/td>\n4%<\/td>\n<\/tr>\n
other stores of value<\/td>\n1%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

data from the wharton global family alliance<\/p>\n

 <\/p>\n

note that the allocation to stocks for the typical family office remains relatively high, at 44 percent. we believe that this allocation to equities may be unnecessarily risky for many successful families, who might very well be able to achieve the full range of their financial goals and preserve their wealth better by owning fewer equities (for example, around 30 percent).<\/p>\n

take this example of an entrepreneur \u2013 we\u2019ll call him dan \u2013 who had recently experienced a liquidity event and sold his firm. dan\u2019s deal was largely based on equity in the acquiring company. this left him not only with a large allocation to stocks, but also with a highly concentrated position in a single holding. we began working toward an overall portfolio allocation for dan that resembled the typical family office allocation, customized to his family\u2019s unique needs and goals. as homes and other assets were acquired, dan was able to use the targeted household allocation to stay on track over a planned number of years.<\/p>\n

asset class returns are ample for preserving and growing wealth<\/strong><\/p>\n

if our asset allocation choices are responsible for nearly all of our investment results, then clearly it makes sense to build portfolios consisting of entire asset classes \u2013 be they stocks, bonds or other categories.<\/p>\n

this was exactly the thinking that turned wall street upside down when john bogle founded vanguard. as he once said, \u201cdon\u2019t look for the needle in the haystack. just buy the haystack.\u201d<\/p>\n

my experience is that some people like stocks. they like the stories attached to products and companies and growth. as a result, the act of stock picking receives a tremendous amount of focus from investors and their advisors.<\/p>\n

however, when you purchase the stock of one or even several companies, you essentially place a bet that has two possible outcomes:<\/p>\n

(1) lose a lot, or
\n(2) make a lot.<\/p>\n

but when you buy \u201cthe whole market\u201d \u2013 that is, the hundreds of stocks that make up a particular asset class \u2013 you vastly narrow the range of possible outcomes. it may not provide the same adrenaline rush as holding a single hot individual stock, but it certainly protects your downside while still providing plenty of upside.<\/p>\n

further, it is incredibly difficult to pick only the winners over time consistently. consider these findings from the spiva u.s. scorecard:<\/p>\n