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3. Choosing Managers Without Setting Goals
If you don’t know where you are going, how can you choose a path? The right money managers are a critical factor in your investing success, but they are means to an end. Without a clear definition of what success looks like, how can you decide which ones will take you where you want to go?
Successful investing is a lifelong journey. Before you embark on that journey, it pays to spend a little time considering your destination. This is important because investing involves taking risk. As a rule, you don’t want to take any more risk than is necessary. How much risk is necessary? That depends, in part, on how much money you’ll need to reach your goals. How much money will you need? That’s the question a Goal Plan can answer.
Before choosing managers or even creating a portfolio allocation your WrapManager Strategist will create goal plan to be sure we understand what you need your money to do for you in the future. What are your goals in life: security in retirement, education of your children, a vacation home, or travel? How much you’ll need and when you’ll need it are important elements of a successful investment strategy.
A second vital element of the plan is your risk tolerance. Risk tolerance has two components: your personal level of comfort with risk and your stage of life. Even if an 85 year old is a wild, crazy risk taker, her appropriate allocation may be conservative simply because of her current income needs.
Only after we understand your risk tolerance and goals will we create a strategic asset allocation for you and recommend a group of managers and perhaps other assets that will bring that strategy to life. We feel that it can be a critical mistake to invest your money without first giving careful thought to your goals and risk tolerance.