 Most financial advisors begin and end their process with the selection of investments. Our opinion is that investment planning and the selection of investments is premature until a client`s goals and objectives, current financial position, and other investments have been identified and analyzed. This integrated approach separates our wealth management process from the typical stock broker. The accompanying graphic demonstrates the interelationship between the areas of financial plannning.
Critical to our process is the development of a detailed cash flow that projects asset growth/depletion, income, and expenses from today through life expectancy. Using the cash flow we can determine many parameters for future planning, such as:
- Required return to meet plan goals and objectives.
- The amount of life insurance required in the event of premature death.
- The amount of disability insurance necessary to replace income.
- Necessary distributions from retirement plans.
WJ Interests leverages its planning capabilities through professional relationships established with other experts in their fields, including accountants, lawyers and insurance agents. These combined services, overseen by WJ Interests, assure the client that all aspects of their financial life are being examined and managed responsibly.
Investment Planning
Through this integrated approach we establish the basis for developing an investment plan for the client. We refer to the investment plan as an Investment Policy Statement (IPS). The IPS should be viewed as a long-range strategic investment plan. It establishes a baseline from which the supervising, monitoring, and evaluating of investments can be completed effectively. And, most importantly, it minimizes the temptation to alter a sound investment program because of irrational fears of short term volatility of the market.
Our investment process consists of six steps. Each step is continually revisited to  ensure conformance with the IPS and to react to market conditions. The steps are as follows:
- Establish a minimum (floor) return necessary to meet long term goals and objectives. Analysis from the initial planning phase is used.
- Develop long term capital market expectations for each proposed asset class in the portfolio.
- Develop a strategic (target) asset allocation utilizing modern portfolio theory a sophisticated mathematical technique that provides guidance on the most efficient combinations of asset classes. The allocation is chosen to meet the required floor return and risk tolerance on the client. Studies (Brinson, Hood, and Beebower) have shown that this initial asset allocation decision may account for as much as 94% of the subsequent performance of the portfolio. In consideration of the finding, our approach takes particular care in establishing the initial asset allocation. The accompanying graphic shows the results of the referenced study.
- Select superior money managers to represent each asset class in the strategic asset allocation following the steps in the accompanying graphic. Both mutual fund and separate account managers are considered.
- Adjust strategic asset allocation based on our short term forecasts of market returns (tactical asset allocation).
- Monitor asset allocation and investments and adjust as necessary.
This multi-step process maximizes returns for a clients desired risk level through optimization, selection of superior money managers, and tactical asset allocation.
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