When you think of managing your portfolio, you probably think about the big picture of investing: how much you’ll invest, where you’ll invest it, and what strategy you’ll use. As advisors, we have all these aspects in mind, but we’re also focused on the day-to-day factors of keeping your portfolio on track and making sure you get the most out of it. The daily implementation of your portfolio isn’t glamorous, but it’s crucial in maximizing your portfolio’s value and making sure everything stays in line.
It would be great if a machine could handle the daily movements of your portfolio – investing is a largely automated industry – but in the end, it often comes down to judgment calls that no machine can make. There is no “right” or “automatic” way to think about a tradeoff between paying more in capital gains taxes and hewing closer to your ideal asset location. Everything is about figuring out what tradeoffs make the most sense for you. In order to make those decisions, you need context, intuition, and a human partner.
Portfolio Management Schedule
We try to automate as much of the portfolio management process as possible, but this only takes us so far. Much of investing simply needs an actual person to get their hands dirty. Still, our automated systems do what they can and then identify situations that need a human touch. We have found the most efficient approach to be to set up a schedule for all automated checks. Some are performed daily, some weekly, some monthly and so on.
- Review new clients – We check to make sure everything is handled quickly and smoothly for new clients. When our systems identify new clients, the investment operations team reviews their accounts to make sure everything is in order.
- Review accounts using margin – When we decide to use margin loans to smooth out your cash flow needs, we keep a very close eye on it. Checking these daily allows us to make sure everything is running smoothly and we don’t have any issues.
- Reconcile account holdings – When things move in your portfolio, there is always the (small) possibility that there will be mistakes. Our systems will double check that our data matches up with the data that the custodian is reporting to make sure that trades execution happens correctly, and that there are no errors. If there are errors, we can address them immediately. This does not happen often, but when it does, it needs to be handled quickly.
- Handle contribution or distribution requests – We want to take care of any money going into or out of a client’s account as quickly as possible. Most of the time we know about these in advance, so we can be prepared for them. Afterwards, we reconcile the accounts to ensure everything was handled correctly.
- Review accounts for excess cash – We want to keep as much of your money invested as possible, so we are always watching out for excess cash in your portfolio – often a result of a fund distribution. When we notice excess cash, we use it to bring your portfolio back into line with your asset allocation.
- Review portfolio for asset allocation and asset location compliance – Your asset allocation is the most important decision you will make for your investment portfolio. We want to make sure we keep your portfolio in line with your stated asset allocation. We also want to make sure you maximize the value of your tax advantaged accounts through appropriate asset location. Automated systems compare your portfolio against your ideal asset allocation and location and alert us of any significant differences. These systems have some wiggle room since the market is always moving and we don’t want to pay trading costs every week, but not so much that you are taking the wrong amount of risk in your portfolio.
Every Other Week:
- Handle planned distributions – Many clients in retirement want to draw a regular “paycheck” from their portfolio. We make sure these are all on schedule and take the opportunity to nudge your portfolio back toward your asset allocation by drawing money from the most overweight asset classes.
- Look for tax loss harvesting opportunities – We comb through all taxable investment accounts in search of tax loss harvesting opportunities. If we find a good opportunity (we’ll talk more about what a good opportunity looks like later), we adjust our rebalancing criteria to make sure we’re not breaking the wash sale rule (more on that later, too).
- Manual rebalance review – While our automated tools check your asset allocation and location every week, we also want to manually check your portfolio as well. The automated system is pretty smart – we’ve built in a number of rules that help the algorithm spot any issues. But by manually reviewing your portfolio on a quarterly basis, we can make sure we’re comfortable with where it sits and revisit any judgment calls we made.
Portfolio management is as much art as it is science, so we want a mix of automated systems and actual people looking at your investments. Automated systems have made advisors’ lives much easier – they can quickly warn us if things are drifting away from where they should be, and they increase our efficiency considerably. But machines can only watch for the things we tell them to watch for.
That’s why our investment operations team keeps a constant eye on everything, even between the official reviews. Think of it this way: automated systems are the first line of defense, monitoring every issue that arises. The investment operations team stands behind the machines, making sure nothing is missed. Your advisor is the final defense, checking every movement in your portfolio against your desired allocation and making sure your portfolio is doing exactly what it should be.
Imagine your portfolio as a man on a tightrope. He holds a bar that needs to be perfectly balanced to his specifications in order to keep him upright. Once he is up and going, he will tilt the bar one way and then the other to maintain balance. He doesn’t do this once – he does this the entire time.
Maintaining balance in your portfolio is very similar. Once it’s set up, every time we trade for you we are shifting the balance to bring your portfolio closer to your asset allocation. The market is constantly shifting, and we need to move with it to keep your portfolio “upright.”
McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.
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