Colten Christianson is senior advise for private clients with Moss Adams in Santa Rosa. Christianson answered Business Journal questions about wealth management.
What difference does the age of a client make in what you suggest to them as an investment strategy?
The particular asset allocation in your portfolio greatly influences your investment returns. Age or time horizon is one of the primary factors to consider when looking at determining an appropriate asset allocation. Specifically, the timeline for the use of the dollars will impact the amount of risk in your portfolio. As an example, a younger individual, executive or business owner who is carving off dollars for retirement can generally afford to take on more risk and weather more volatility than someone who is reliant on the portfolio to sustain their current lifestyle.
How do you help a client determine what level of risk they are comfortable with when it comes to investing their money? Are there key questions you ask to assess that risk?
An appropriate amount of risk to take is generally a combination of your personal feelings about risk (i.e. tolerance), but also the risk that is necessary to achieve your financial goals. We help clients evaluate this by going through an in-depth financial planning process, including tax, estate, or other planning specific to each client, to understand how their current and future balance sheet can support their lifetime consumption goals, and determine the asset allocation along with risk that may be necessary to help achieve those goals.
An investment plan that’s well integrated with an overall financial plan is far more likely to be effective than one conducted in a vacuum. Aligning your investment goals with the rest of your personal goals helps drive overall wealth creation and preservation.
Maintaining a long-term view generally pays off over time. There will be times when short-term investments may make sense, but in my experience the most successful portfolios are those oriented for the individual’s longer term goals. We encourage clients not to make decisions based on emotion or heightened sensitivity to market pressures. Trying to time the market isn’t what we do. Instead, we develop an asset allocation plan and generally seek to stay the course in order to achieve our client’s consumption and legacy goals.
What mistakes do you see individual investors making in the current financial climate?
A couple of the most common questions I’m getting currently are, “I think we’re at the top, should I go to cash?” or “I have cash, should I wait to invest it?” The reality is that while volatility in the markets can be unnerving, market corrections, declines, and even recessions are normal parts of market and economic cycles.
The difficulty with timing the markets is that you have to get it right twice: You have to know when to get out and when to get back in. I don’t believe that you can do this consistently. It is important to remember that over longer periods of time markets generally deliver positive total returns.
Therefore, assuming you have an allocation that incorporates your objectives, your appetite for risk and your overall timeline, my advice is to invest. Then, as market conditions and your goals change, it is important to rebalance and revisit accordingly.
Returns are only one part of your financial story though. It is important to look at a broader picture, including your estate planning, tax considerations and more. This is why it is so important to start with a financial plan.
What is your best advice on planning for a financially secure future?
The best piece of advice I can give is to start by making a comprehensive financial plan in which your investment strategy plays a significant role, but certainly not the only role. It’s important to understand why you’re investing, which means you should define your financial goals before you determine how to invest. This can help you figure out the appropriate amount of risk to take on.
A good financial plan integrates your investment strategy into a larger plan that’s tailored to your specific situation — allowing you to better monitor progress toward your overarching financial goals. Sticking to your financial plan will allow you to maintain a long-term focus and remain disciplined through volatile market environments.