JMG’s Investment Process, Designed Around You
By Bill German, Chief Investment Officer, Principal, CFP® and John White, Principal, CFA, CFP®
Clients and prospects often want to better understand how JMG will invest their money.
What they often don’t realize is how complex this question really is. Today’s article is the first of a four-part series which we hope to provide some insight into the process behind how we invest and why. In this first article we focus on the overall approach, how it fits into the planning process, and the first step in the process – understanding the client, through Client Analysis.
Background
Over JMG’s 41-year history, we continually refine our investment process to be robust, consistent, and flexible enough to be customized for each of our clients. Our goal is to maximize investment returns within the context of each client’s overall plan and risk parameters. With this in mind, we have built a process around the advisor-client relationship that provides important frameworks and safeguards.
As we consider what a successful process looks like, we strive to optimize our clients’ financial lives to meet their goals and reduce their income and estate taxes over their lifetimes. We do this through long-term planning and deliberate implementation.
We view investing not as an end, but as a tool that must be understood within the larger context of our clients’ goals, financial plan, and tax situation. We believe we can produce better after-tax, after-fee outcomes through a disciplined process of tax-aware, planning-based portfolio design and implementation. While we are always looking to enhance client portfolios to maximize return, we are mindful of trading costs and the importance of maintaining appropriate levels of risk.
JMG supports our advisors in this process by encouraging a consistent framework for understanding your situation, and how investment outcomes relate to the planning process. Our Investment Committee has a wide range of well-informed, qualified perspectives. In addition, we have built a collaborative culture which encourages team members to help each other and maintain a free flow of ideas. JMG’s Investment Committee and Research Team maintain open door policies for advisors to discuss specific client situations.
Our Process
Many clients come to us with an understanding of investing which is focused on just one step in the process – Investment Selection – commonly known as “stock picking”. They view investing as a zero-sum game, where you win or lose relative to other investors. This view of investment selection is incomplete. While investment selection is an important part of what we do and contributes to the portfolio results, it is only one part of the complete investment process.
Broadly speaking, our investment process has four steps:
- Client Analysis
- Portfolio Design
- Investment Selection
- Ongoing Management
A well-built portfolio supports client goals and uses diversification to optimize the risk and return tradeoff. Most of this is accomplished through the portfolio design which establishes a client’s strategic allocation. We enhance this portfolio structure through security selection, and ongoing management including thoughtful rebalancing and tactical shifts. We balance these efforts by keeping trading frequency at a reasonable level since too much trading activity can detract from results due to potential income tax costs and poor market timing.
This process is continuous and adapts to both market dynamics and changing client situations and needs. At the end of the day, what matters is not the results of any single investment, but whether the investment portfolio, as a whole, supports the client’s goals, after taxes, and after fees.
The result may look simple but it is the result of considerable analysis and ongoing due diligence.
Let’s examine the process, starting with Client Analysis, to understand how we seek to add value at each step.
Client Analysis
Every client is different with different world and investment views. Clients are each at different stages of life, have different families and different goals. You have different assets, earn different amounts, and spend differently. You have different kinds of accounts, with a different mix of taxable, tax-deferred and tax-free assets. You have different experiences, different perceptions, and different understandings about many things, including investing. At JMG, our advisors view the client analysis process as one of the most important steps since getting to know you, our client, and your goals is fundamental. It is your advisor’s job to understand you and work with you to determine the most appropriate investment approach.
Areas we consider include, but are not limited to:
- Overall Level of Assets
- Client Financial Goals, Income and Expenses
- Client Mandates and Restrictions
- Cash Needs and Liquidity
- Investment Experience
- Overall Risk Tolerance
- Current and Projected Income and Estate Tax Exposure
With a deep understanding of each client and having developed a plan to support the client’s goals, the advisor is ready to focus on building the client’s investment portfolio. This begins by determining the appropriate portfolio design along with a curated investment selection that supports the client’s overall goals and objectives.
We will cover the next three stages over the next three months. Feel free to contact your JMG advisor if you have questions about our investment approach. We invite you to share this article with others who may also find it insightful.
Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by JMG Financial Group Ltd. (“JMG”), or any non-investment related content, made reference to directly or indirectly in this writing will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this writing serves as the receipt of, or as a substitute for, personalized investment advice from JMG. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. JMG is neither a law firm, nor a certified public accounting firm, and no portion of the content provided in this writing should be construed as legal or accounting advice. A copy of JMG’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a JMG client, please remember to contact JMG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. JMG shall continue to rely on the accuracy of information that you have provided.
To the extent provided in this writing, historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices. Indices are not available for direct investment.
Market Segment (index representation) as follows: U.S. Large Cap (S&P Total Return); U.S. Mid-Cap (Russell Midcap Index Total Return); Foreign Developed (FTSE Developed Ex U.S. NR USD); Emerging Markets (FTSE Emerging NR USD); U.S. REITs (FTSE NAREIT Equity Total Return Index); Foreign REITs (FTSE EPRA/NAREIT Developed Real Estate Ex U.S. TR); U.S Bonds (Bloomberg US Aggregate Bond Index); U.S. TIPs (Bloomberg US Treasury Inflation-Linked Bond Index); Foreign Bond (USD Hedged) (Bloomberg Global Aggregate Ex US TR Hedged); Municipal Bonds (Bloomberg US Municipal Bond Index); High Yield Bonds (Bloomberg US Corporate High Yield Index).