Portfolio Management: What to Expect?

The Portfolio Management service is available for clients who would like to delegate the day-to-day work of managing investments to me.  Before I can manage your investments for you, you’ll need to complete a few administrative steps to set this up.

 

Custodian

 

First, depending on where your accounts are now, you may need to transfer your accounts from your current custodian.  I can manage assets held in most types of Vanguard accounts, and some 401(k) plans.  I have also set up a custodial relationship with TD Ameritrade Institutional.  If your accounts are currently at a different custodian, then the first step will be to choose which custodian to use.  I’ll help you decide which option makes the most sense for you based on the available investment options and fees for each custodian.  Then, I’ll get you in touch with a transfer specialist who can work with you to make the transfer process as smooth as possible.

 

Account Access

 

Next, we’ll need give me trading authority over your accounts.  To do this at Vanguard, we’ll execute what’s known as a “Limited Power of Attorney” (LPOA), which allows me to view your accounts, submit transactions, and transfer money to your bank account.  There is a long list of account-related activities that I won’t be allowed to do, such as change your address, transfer money between accounts with different owners, or transfer money to a new bank account.  The purpose of these limitations is to protect you and give you peace of mind, but it also means that you’ll need to take care of a few account administration tasks yourself (such as linking your bank account).  I can walk you through how to do all of this when we meet.  For most types of Vanguard accounts, this account access can be granted online.  Paper forms are required in a few cases.

 

Investment Plan

 

Before making any changes to your investments, we’ll spend some time understanding your financial goals, risk tolerance, and other preferences.  I’ll prepare a detailed Investment Plan which we’ll review together.  After we’re both satisfied with the plan, I will take care of initiating any transactions needed in your accounts to implement your plan.

 

Cash Flows

 

If you’re in the accumulation phase, you’ll be adding to your portfolio periodically.  Whenever it’s time to add cash to your portfolio, I’ll check your account to see which asset class is currently below its target, and add the new contribution to this asset class.  This allows you to “buy low”.

 

If you’re in the decumulation phase, I’ll manage the portfolio to provide you with a steady stream of income, which will be transferred automatically to your bank account (usually monthly).  When investments need to be sold to raise cash, I’ll sell from the asset class that is above target.  This allows you to “sell high”.

 

Monitoring and Rebalancing

 

After the portfolio is constructed, different investments will experience different returns in any given year.  Rebalancing is the process by which additional funds are added to the underperforming investment in order to get back to the desired asset allocation.  Rebalancing can be done using new investments (if in the accumulation phase), using distributions such as dividends and interest, or by selling an outperforming investment.  There are many different strategies for rebalancing.  I use a strategy called “opportunistic rebalancing” which is based on a research paper by Gobind Daryanani from 2008, and has been further validated with subsequent research.  

 

I’ll monitor your portfolio regularly and rebalance as needed.

 

Account Aggregation


Many households have a portion of their portfolio in accounts that I can’t manage directly, such as a 401(k) or a 529 plan.  Because I construct and rebalance each portfolio at the household level, I’ll need to be able to keep track of what’s going on in the accounts that I can’t access directly.  We’ll get those accounts set up with my aggregation software so that I can keep tabs on your “held-away” accounts and let you know when we need to make an adjustment.  This allows you to fully delegate the monitoring of your portfolio to me.  You’ll still need to login to those accounts from time to time to make an adjustment.  We can do this together in one of our meetings, if you like.

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