At United Capital, we often say, “More of something often means less of something else.” We repeat this phrase to ourselves and to our clients because we believe that it captures an important investment truth that can help us reach our investment goals.In fact, it resonates so strongly with us that we’ve aligned our investment platform around prioritizing sometimes-conflicting goals.We’ve outlined how investors must choose between strategies that emphasize outperformance, protection, tax minimization, or low cost tracking to a benchmark. So what does this really mean? We contend that it highlights the investment choices we need to make when identifying the investment goal for a specific, individual account.
Consider, for example, the resources that must be expended in order to achieve outperformance relative to a benchmark index, and how that must necessarily move away from “low cost”solutions. Moreover,if that strategy successfully outperforms a benchmark, it will no longer closely track that benchmark, much less be tax efficient. In a similar vein, a strategy whose primary focus is on risk avoidance can’t, at the same time, take aggressive positions that could pay off handsomely, because it could instead suffer notable losses if the investment thesis doesn’t pan out. No investment professional has a crystal ball, so it is impossible to invest in a strategy that can exploit potential profits yet takes no risks at all. Opportunities, by definition, come with some sort of risk or another. Otherwise, they are not opportunities.
By prioritizing which matters most to you for each of your particular accounts – low cost tracking, outperformance, tax minimization, or protection – we aim to provide solutions that best fit with your highest need for a specific account. Of course, these are spectrums, not a yes/no decision. One can have degrees to which an investment focuses on say outperformance. In fact, the spectrum can be quite broad. Even within the same investment series, you can choose, hypothetically, between a 100% equity version and a balanced version that contains varying elements of fixed income.
Of course, every investor is a complex individual and often has many nuanced investment objectives and accompanying emotions about investing. The answer of how to address these competing agendas is to reconcile your asset constituencies with your various, competing investment goals. Many clients have different accounts representing distinct pools of funds, each with a separate time horizon and investment objective. One may invest a retirement account entirely different from the college savings account for a child now entering high school. And then the same client may have one pool of funds with which they can take absolutely no risk and another pool of funds with which they can afford to take significant risks, depending on the ultimate goals that those funds serve. Each account may have a different objective – and thus a different solution, on a different axis on our platform, all aggregating up to a very multi-faceted approach to investing.
That means that our paradigm of viewing our investment platform holds true when one disaggregates your entire finances into a more easily understood (not to mention more actionable) framework of how to invest each of your individual accounts. And it is at this juncture where our platform fits into the equation.
By identifying where a particular portfolio fits along these axes, you can easily conceptualize the idea that more of something often means less of something else. A greater emphasis on protection by necessity means that one can’t focus on outperformance or follow a lowest-cost index strategy, and so on. By putting investments into this framework – and selecting investment vehicles that match your specific and mutually exclusive goals for an account – we can best help you achieve your goals. And by understanding this trade-off upfront, your journey to your investment destination will likely take a more satisfying and appealing route.
Disclosures
Investing involves risk, including possible loss of principal, and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this piece is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances.
An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the returns presented.
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