Our overriding investment philosophy at Aptus is “keep it simple.” As we highlight in our Hierarchy of Financial Needs, your retirement outcome is more likely to be determined by your income level and savings rate than it is to be driven by clever stock picking or crafty asset allocation decisions. We encourage our clients to capture broad market returns across a range of asset classes utilizing low-fee index funds. Especially for younger investors, we principally focus on stocks and bonds. Older and higher net worth investors might use sub-classes of stocks and bonds—like inflation-protected bonds—and/or alternative investment vehicles like real estate.
Our asset allocation recommendations are primarily informed by the averages of a host of target-date fund families. Morningstar recently published its 2017 Target-Date Fund Landscape, which includes detailed information about the asset allocation glide paths for 49 target-date fund series. These funds incorporate the collective wisdom of investment strategists from the biggest mutual fund companies in the world, including Fidelity, JPMorgan, T. Rowe, Vanguard, American Funds and TIAA-CREF. We consider the averages of these target-date funds as our best estimate of risk-neutral, age-appropriate allocations. We are not trying to make bets.
These average allocations are only a starting point for individual investors, albeit one that often reflects the right course for most people. There are several factors that might impact risk/return trade-offs and allocation decision. While age and time horizon are important factors, an individual’s current or expected level of wealth—relative to their spending levels—is another critical factor in determining asset allocation. Increased wealth enables an investor to accept higher risk. We also take into account an individual’s risk psychology. While we encourage a dispassionate approach to investing, it may not be wise for someone to invest primarily in stocks if they know they will panic-sell on market dips.
Ultimately, we work for you. We provide guidance and education to support do-it-yourself investing. We help our clients determine the most appropriate asset allocations for their circumstances. And we keep it simple.