When most people are asked about their investment goals, they have some vague answers: provide for their families, be able to live a comfortable lifestyle, maybe travel, and other non-defined plans. However, in order to achieve these goals, we need to determine what their concrete end goals are: What kind of approach do they take to investing? How do they set about actually investing? How do they create a plan that fits into their money values?

Our approach is Modern Portfolio Theory (MPT). MPT was created by Harry Markowitz, a Nobel Prize-winning economist, in his paper “Portfolio Selection.” It is an investment theory based on the idea that risk-averse investors can create investment portfolios to optimize or maximize expected return based on a given level of market risk. It is one of the most important and influential economic theories dealing with finance and investment of its time.

MPT essentially says that it is possible to construct an optimal investment portfolio that offers the best possible expected return for a given level of risk. It’s knowing the risk you feel comfortable taking. By investing in various asset classes like stocks and bonds, you can take advantage of diversification, which reduces in the riskiness of the portfolio. You reduce risk by not putting all of your eggs in one investment “basket.”

One way to create this plan is with a money manager. But it’s important that a person’s money manager is on-board with their plan and goals. In order to be sure that’s the case, certain questions need to be asked. What procedures or processes do they have for money manager selection? For example, when we select money or fund managers, we look for those who deliver good performance over the long term, have a below-average risk profile for their style of investing, and stay consistent in their investing approach. The most important considerations in selecting an investment advisor are their philosophy, approach, and methodology.

For more information about making planning your financial journey match your values,  visit tswealth.com.

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