How to Maximize Your Investment Potential — Asset Diversification Strategies and Allocation
Plus 10 questions to ask your financial advisor.
As a devoted reader of ColoradoBiz, you know the importance of making your money work just as hard as you do. Colorado’s business community is not only passionate about their work but also about embracing the great outdoors during their downtime. Whether it’s hiking, running, biking, skiing or simply immersing themselves in nature’s beauty, active business professionals like you deserve to have your assets working just as diligently as you do.
As a financial advisor, I have some exciting news to share. Over the past 20 years, investment assets and real estate have experienced a remarkable 77% growth in valuation. However, I believe it’s crucial to address the lagging growth of productive investments such as infrastructure, machinery, and equipment, which has only seen a 23% increase. To ensure the economy’s true growth, this number must rise. Nevertheless, for those striving to achieve their financial goals, there are numerous ways to diversify assets.
In a time marked by volatility, maintaining a diversified portfolio across asset classes, risk levels, styles and time horizons is essential. It’s an old adage, but it still holds true: don’t put all your eggs in one basket.
Often, I observe an overconcentration of assets in a business person’s area of expertise. For example, real estate professionals tend to be heavily weighted toward real estate investments. As an advisor, I recommend balancing this with an investment portfolio that includes equities and alternative investments.
2021 and 2022 ushered in a new era for investment portfolios. After a decade of seemingly foolproof investment opportunities, people needed to adapt to a changing landscape. Even though some investors faced challenges during this period, it provided valuable insights. Liz Ann Sonders, the Chief Investment Strategist for Charles Schwab, declared in early 2022 that the era of passive investing was over, a sentiment she has reiterated in every monthly talk since. As an active and tactical investment manager, I wholeheartedly agree.
The frequency of “Black Swan” events in finance, traditionally considered unpredictable happenings occurring once a decade, has intensified. From the COVID-19 pandemic to the Russia-Ukraine conflict and the looming China-Taiwan conflict, these events have had far-reaching effects on the economy and markets, impacting everything from gas prices to supply chain disruptions. Historical models were not designed to handle several unpredictable events in a single year. To minimize exposure to risks and identify opportunities, managers must be more active and attuned to current news.
When I transitioned from a large financial firm to my boutique practice, a critical decision was to customize portfolios that aligned with my clients’ personalities and goals. Instead of relying on model portfolios imposed by big firms, which often concealed hidden fees, I wanted to empower my clients with transparent and tailored solutions. The pressure on advisors to conform to big firms’ interests is significant, as these firms seek to maintain control over client finances.
A fundamental aspect of my approach to finance is education and empowerment. I actively speak to empower women in finance and young individuals because the industry remains predominantly male-dominated. I believe that a woman’s approach to finance is unique, and I’m eager to share ideas that can help ensure your portfolio truly serves your needs.
Consider the following questions to gauge the effectiveness of your portfolio:
- Are you adequately diversified across asset classes?
- Do you have different time horizons and risk categories aligned with your financial goals?
- Has your advisor discussed the shift from a traditional 60/40 portfolio (equities to bonds) to one that includes alternative investments? Are you invested in alternatives?
- Are you in a model portfolio from a firm or a custom-built portfolio designed specifically for you?
- How frequently does your advisor rebalance or adjust your investments given the market’s volatility?
- Does your advisor strive to educate and empower you regarding your investments, enabling you to navigate the emotional aspects of investing more smoothly?
- Do you receive a corporate narrative on the market and economy, or do you benefit from your advisor’s unique research and thought pieces?
- Does your advisor have the courage to deliver honest assessments of the market, even if they aren’t necessarily positive?
- Are you aware that market fundamentals are worse now than they were six months ago? How has your advisor addressed this?
- Remember, your advisor works for you. Don’t hesitate to ask questions and advocate for yourself, just as you would in a medical setting as a patient.
Colorado business people, your hard-earned money deserves to work just as hard for you. Be as strategic with your investments as you are in business and when enjoying the incredible lifestyle Colorado has to offer.
Having spent years in San Francisco at Morgan Stanley in wealth management, Lisa Durant moved to Telluride, Colorado and launched her own firm, Lion’s Eye Wealth. Prior, she launched Martha Stewart’s nationwide events program in NYC, and led marketing at San Francisco Magazine. For over 15 years, she has advised founders on business, marketing, communications and social media plans. Lisa combines creativity and innovation with financial know-how.