IS FOR ACTIVE REBALANCING OF INVESTMENT PORTFOLIOS

Without regular rebalancing, a client’s portfolio could become overly heavy in large capitalization U.S. equities.

Over longer periods of time, this sort of shift can meaningfully change the risk and return potential of a portfolio. For example, if an investor had purchased a hypothetical balanced portfolio of 60% equities and 40% fixed income in January 2009 and it had not been actively rebalanced since then, by the end of 2021 the profile of the portfolio would be very different. That original balanced portfolio would have become a growth portfolio, with approximately 84% invested in equities and only 17% in fixed income. Such a huge imbalance could expose the investor to the risk of a significant drawdown if equity markets fell sharply.

WHEN BALANCED BECOMES THE NEW GROWTH

The potential result of an un-balanced portfolio

Source: Hypothetical analysis provided in the chart & table above is for illustrative purposes only. Not intended to represent any actual investment. Source for both chart & table: U.S. Large Cap Growth: Russell 1000 Growth Index, U.S. Large Cap Value: Russell 1000 Value Index, U.S. Small Cap: Russell 2000^® Index, International Developed Equities: MSCI World ex USA Index, Emerging Markets Equity: MSCI Emerging Markets Index; Global Real Estate: FTSE EPRA NAREIT Developed Index, and Fixed Income: Bloomberg U.S. Aggregate Bond Index.

IS FOR BEHAVIORAL COACHING

Pulling out of the market when it is falling can lock in losses and could lead to missing out on any subsequent rally. Without a crystal ball, it’s hard to time the perfect point to get back into the market once you have left.

As the following graph shows, missing out on even a few days of good performance can really hurt your portfolio. And the thing is—you can never predict when the market will have a good or bad day. The factors that affect market performance can range from stock-specific news to geopolitical events to newly released data (such as employment statistics) to even technical trading triggers. It’s best to just ride things out. Although it’s scary when markets decline, it’s worth

Although it’s scary when markets decline, it’s worth remembering that they do tend to go up over the longer term. In fact, the S&P 500 Index has risen 74% of the time since 1926¹. Those are pretty good odds.

DIFFICULTY OF MARKET TIMING: THE INVESTMENT IMPACT OF MISSING BEST MARKET DAYS

10 years ending December 31, 2021

Source: Morningstar. In USD. Returns based on S&P 500 Index, for 10-year period ending December 31, 2021. For illustrative purposes only. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.

¹ Source: Russell Investments, represented by the S&P 500^® Index from 1926-2021

IS FOR CUSTOMIZED EXPERIENCE & FAMILY WEALTH PLANNING

Let’s face it, as your life becomes more and more complicated, with your own set of personal goals, circumstances, and preferences, an advisor who has a deep understanding of your individual situation can provide significant value to you. The customized client experience and comprehensive wealth planning that advisors can provide may be vital to guiding you and your family through all of your major life events and decisions. How much value do you put in an advisor who has a deep understanding of your individual situation and what you are trying to achieve?

Hypothetical scenario for illustrative purposes only.

IS FOR TAX-SMART PLANNING & INVESTING

Why should we be concerned about tax management? Because taxes can have a significant impact on returns. Our research shows that investors who don’t hold tax-managed mutual funds lost an average of 2.14% of their return from U.S. equity products in each of the five years ending December 31, 2021—because of taxes.

More importantly, over time, that kind of tax drag can add up. For example, a $500,000 investment that lost 2.14% annually to taxes would only be worth $843,000 in 10 years, assuming a 7.5% average annual return. But that same investment with no tax drag would be worth $1.03 million. The numbers are even more telling when you look at the hypothetical growth of $500,000 over 20 years.

HELPING YOU KEEP MORE OF WHAT YOU EARN

Hypothetical growth of $500,000 at 7.5% annual return per year | 10 years & 20 years

This example does not reflect the deduction of state or federal income taxes. If it had, returns would have been lower. This is a hypothetical illustration and not meant to represent an actual investment strategy. Taxes may be due at some point in the future and tax rates may be different when they are. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Communicate advisor value

The waning of the pandemic and the new geopolitical environment could be the perfect time for advisors to reassess the full value they deliver and how they communicate that value to their clients.

We know that many advisors worked with their clients over the course of the pandemic to stick to their investing path. Our formula shows that even if advisors were only able to help their clients avoid the behavioral mistakes that many investors made in the market turbulence, then advisors likely already provided value above and beyond their fee. Add to that an advisor's other services, the active rebalancing process, the customized client experience that advisors give their clients, and the savings from a tax-managed approach, and it seems clear that the total value advisors deliver is significant.

Client relationships are your most valuable assets
Use this additional material to help shape your conversations with clients.

A collection of materials for frequent client conversations, this kit includes our evidence-filled report: Why work with a financial advisor? Because that relationship may be one of your best investments.

Continuing education credit opportunity

Earn continuing education credit while learning about our Value of an Advisor Study.