In a previous post we described the three principles that guide us here at Crimmins Wealth Management, LLC. In this post, we describe the three practices that we follow on an ongoing basis to help our clients achieve their financial success. As we indicated in the ‘3 Principals’ post, once we have determined what their long-term goals are, we set up a financial plan to help them achieve their unique goals. This plan – an investment strategy – is always based on the long-term historic averages of the multiple asset classes that the portfolio would be invested in.
Once this is accomplished, we then follow these 3 practices that are the bedrock of our philosophy at Crimmins Wealth Management.
- Asset allocation – this is the determination of how your money needs to be divided into various investments to derive the performance return that you would need to achieve your goals. It is determined by owning a combination of various asset classes such as domestic equities, international equities and fixed income instruments in a certain percentage to be able to reasonably attain the rate of return that you would need to reach your goals. This allocation would always take into consideration your risk tolerance. Generally, our clients’ portfolios have approximately 10 different broad asset classes with nearly 10,000 individual securities.
- Diversification – this is the concept of not having all of your eggs in one basket. So as described above, we design our investment portfolios to have multiple asset class exposure. However unlike most, we also diversify inside of the asset class. So, we are not trying to pick the winners and losers inside of each asset class, but will own nearly the entire asset class. This diversification results in the large amount of individual securities held in our clients portfolios and ensures that not one or two investments can derail the portfolio performance.
- Re-balancing – as investors know all too well, the financial markets move each day and lately the daily movements have been extreme. To ensure that our portfolios stay allocated as we intended, on a periodic basis, we need to examine and rebalance the portfolio to keep targeted percentages in each asset class. The analogy I often use is one of having a stick in water with a white line drawn on it. This line which represent how much water we want in each location. Periodically, we would examine the stick to determine if we need to remove some water or add water to the various locations. This does not involve forecasting future movements. It is based on setting a target for the amount of exposure you want in each asset class and maintaining that exposure through time.
So those are the 3 Practices that drive us here at Crimmins Wealth Management. These 3 practices and the 3 Principles previously discussed help give our clients the guidance and clarity of thought necessary to achieve their goals.