Investment Management

How can I tell if my investment manager is adding value?

January 22, 2021 By Jacki Liautaud

In this article, we’ll discuss one way of measuring investment manager value.

Sometimes prospects tell me about their current investment manager. One thing I hear a lot is, I don’t really know how my accounts are performing. How can I tell if I’m getting value from my investment manager?

One way is to examine whether your returns are beating the benchmark established for your risk tolerance. Don’t know what benchmark to use? Ask your investment manager about an appropriate benchmark given your risk tolerance.

You’re also paying a fee to have your money professionally managed. So, how can you tell if the fees are worthwhile? Look to see if your returns are beating benchmark by more than you pay in fees. In other words, what is the $ amount that you earned above benchmark for the year (“excess returns”)? Compare that to the $ amount you paid in fees for the year.

Tree Fort Financial measures our investment results against a benchmark, so our clients know how much value we provide.

Tree Fort Financial measures our excess returns compared to our fees as a ratio, and since inception in 2003, we have generated several times our fees in excess returns, per this PDF. Past performance is not indicative of future returns. Please see additional information on this PDF.

If you have questions about this process or would like to learn more, reach out. I’d be happy to chat!

Let’s get started talking about your goals!

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Using a Benchmark to Measure Investment Performance

January 15, 2021 By Jacki Liautaud

In this article, we’ll discuss how using a benchmark can help in measuring investment performance.

The other day I met with a prospect who said, “My IRA/mutual fund/brokerage account is doing well…I think! Wait, how can I tell if my investments are doing well?”

How do you “know” your investments are doing well? One way to “know” how your investments are doing is to establish a benchmark, and measure performance of your investments to that benchmark.

What is a benchmark? According to investopedia.com (link opens in new tab), “A benchmark is a standard against which the performance of a security, mutual fund or investment manager can be measured.”

One example of a benchmark is the US stock market overall or the S&P 500, scaled for your risk level. If your investments are performing the same as, or better than, that benchmark, then you might “know” your investments are doing well. A challenge, though, is knowing what benchmark to select for yourself. For example, if you’re a conservative investor, leery of account balances decreasing and preferring not to take on much risk, is it realistic to expect that you should get the same returns as the US Market overall? Probably not.

This can be an area where a professional investment manager can help. Here’s a link to information on how Tree Fort Financial compares our returns to a benchmark, the Dow Jones US Total Market ETF (symbol IYY), and scaled for risk.

If you have questions about this process or would like to learn more, reach out. I’d be happy to chat!

Let’s get started talking about your goals!

Schedule a Call

Getting Started with Your Financial Plan

December 10, 2020 By Jacki Liautaud

You’ve decided it’s time to start working with us. Here’s what Tree Fort Financial’s process typically looks like.

Getting Started with Tree Fort Financial

Congratulations! You’ve taken the first step in reaching out to an advisor to get help with your financial situation. Now, what should you expect? Below I’ve outlined some steps I typically go through with new clients as they start work with me. Of course, every individual situation is different, so your experience might vary from this.

Step 1: Introductory Conversation.

When someone reaches out to me, either through a personal email/phone call, referral from a client or business associate, or sends me a message through my website, I typically ask for a short, informal introductory conversation. I’d like to see if we may be a fit for working together. I believe this is part of my fiduciary responsibility towards my clients. I will be honest if I feel that I can’t help with an individual situation. This conversation typically takes 30 minutes or less, and during this time we decide whether we will proceed with working together.

Step 2: Data Collection.

The next step is data collection. I provide the client a list of documents I need in order to proceed. Sometimes it can take a week or more for the client to assemble the materials, which include any documents relevant to a client’s financial situation, including mortgage statements, bank and investment account statements, retirement plan and pension statements, life insurance details, student loan and credit card debt details, for example. If the client owns a business, there are a variety of business documents I will need. I provide a secure place to upload all the information, and the client completes this before we proceed to the next step.

Step 3: Financial Planning Kickoff Meeting.

Next, we schedule a meeting to discuss financial goals and dreams, future plans, and current situation (including a review of the documents the client uploaded). The meeting typically takes about 2 hours and can be conducted in person or virtually via Zoom/Google Meet. If the clients are a couple, both partners should attend the meeting because many times they each have differing perspectives about these subjects. I have a set of questions that I go through with clients, and I bring a “no judgement” attitude of curiosity to the meeting. Every situation is unique, and I’m not here to judge past choices, but rather to provide my professional expertise and some education about personal finances. More information about the financial planning process can be found here.

Step 4: Build the plan.

I take all the information I’ve gathered at the above meeting, and spend a significant amount of time (typically 3-4 weeks) building a customized financial plan that directly addresses the specific financial concerns, goals and situation of my client. The plan will include a full set of detailed next steps/tasks the client should take in order to get on track to accomplish their goals.

Step 5: Plan Presentation.

When a draft of the plan is complete, I schedule another meeting with the clients to review and discuss. Often there are decisions the clients need to make as a result of the plan, and plan modifications are typically needed. This meeting typically takes about 2 hours and often results in a really deep and productive conversation.

Step 6: Follow Up and Investment Account.

This step varies by client. Sometimes, additional changes are needed to the financial plan for various reasons. Sometimes, clients prefer a follow up meeting after a month, to check in with me and confirm they are on track with their tasks. If I will be managing the client’s investments, we begin the process of opening accounts at my custodian and set about transferring funds. More information about Tree Fort Financial’s investment management can be found here.

Step 7: Ongoing.

If the client chooses to have me manage their investment assets, they will receive regular communications regarding topics like asset allocation changes, my perspective on the markets or other financial matters, and performance reviews. Depending on the size of the client’s assets that I manage, clients may also receive a monthly newsletter.

If you have questions about this process or would like to learn more, reach out. I’d be happy to chat!

Let’s get started talking about your goals!

Schedule a Call

Lily Pads and Investing

October 1, 2020 By Jacki Liautaud

I visited the Art Institute of Chicago this weekend, which is hosting a special exhibition on Monet and Chicago (link opens in new tab). What a treat to learn about the special connection Chicago has to Monet, and see his gorgeous peaceful paintings of water lilies, bridges, and light. Which got me to thinking about a brain teaser I once read about lily pads.

What can lily pads teach us about investing?

There’s a riddle about lily pads that can provide a great example of the value of compounding in investing.

Here’s the riddle: A pond has lily pads growing on it, and the lily pads double in size every day. After 30 days, the lily pad completely covers the pond. At what day do the lily pads cover half the pond?

“Day 15” is probably the most common and quickest response. But in fact, if the lily pad doubles in size daily, the day it covers half the pond must be Day 29.

This riddle is interesting because it’s an example of exponential growth, not linear growth. Linear growth is easy for our brains to understand: 1, 2, 3, 4. Exponential growth is harder to visualize, and so it’s harder to estimate accurately.

There’s a blog post here (link opens in new tab) that covers this in more detail.

Investing money can help it grow exponentially

The parallel between investing and the lily pad in the riddle above is the power of exponential growth.

Here’s a chart that illustrates the value of compound growth.

The orange striped section represents the compound investment growth that can occur over time, while the blue portion represents the money a person contributed. You can see that over 30 years, the size of the orange portion is significantly more than the blue portion.

This is an illustration only, and does not represent actual performance or investment advice. From this example, though, you can get an idea of how you can put time to work for your financial goals.

In the first few years, the orange investment return portion of the bars is virtually insignificant, and the blue contributions far outpace the investment return. As the years go by, however, the orange portion shows how the contributions have been able to grow over time due to compounding.

Start saving today for the future

This is why it’s so important to get started investing in your future retirement, today. Even if you don’t think you can afford to save now because your salary is low, your debt is high, etc., turn this idea around: you can’t afford NOT to start saving for retirement now.

Let’s get started talking about your goals!

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Single Women and Investing

July 24, 2020 By Jacki Liautaud

Photo by Christina @ wocintechchat.com on Unsplash

A study indicates single women aren’t as comfortable with investing as single men are. Reach out if you’re interested in getting more comfortable with investing and your financial affairs.

45% of Single Women Agree They Know A Lot About Investing

A UBS investor watch study (link opens in new tab) from April 9, 2019 found some interesting discrepancies between single women and single men when it comes to their money. According to the study, 61% of single men agree that “I know a lot about investing” while only 45% of single women do. When it comes to making long-term investing decisions, 74% of single men agree that “I’m confident I can make long-term investing decisions”, but 67% of single women agree.

A Bit of Good News

In good news, the majority of single women say they know how much they are saving for retirement. 69% of millennial women, 90% of Generation X women, and 93% of Boomer women.

These research findings align with some of my personal experiences working with women. In my experience, when women feel confident that they know exactly what to do (contribute x% of salary to your 401k; save $x monthly towards your goal of buying a home) – they are likely to do it consistently.

People experience confusion when they don’t know what to do. As a result, I’ve seen that they often take no action, which creates its own set of problems (not enough money saved for retirement; purposeless spending; no real plan of what to do with their money). And for some reason, according to the study, women are less likely than men to feel that they know what to do when it comes to investing.

That’s where I can come into the picture. One of the aspects of my work that I love most is educating my clients about investing: everything from risk tolerance (what does that mean, what risk tolerance works for me) to investment vehicles (what’s an ETF?) to investments to choose in a 401k with often limited options available. No question is too basic or stupid. Actually, the only stupid question is the one that’s not asked!

If you’re interested in learning more about investing and Tree Fort Financial’s approach, reach out!

Let’s get started talking about your goals!

Schedule a Call