A Meeting With My Financial Planning Consultant

By | May 22, 2007

I had a meeting session with my financial planning consultant, Dan at Fidelity on last Wednesday (5/16/07).  He is very knowledge about finance and I learn something new every time I meet with him. Here are some of my notes:

Professional Portfolio Management
I asked Dan whether professional management is beneficial. He explained the benefits of professional management.  Professional portfolio management (in Fidelity) is a process that manages your portfolio and diversifies your risks. When a section of your portfolio is doing well, that section will be sold off to follow the predetermined percentage of the portfolio. For example, if your portfolio is to composed of 20% in small-caps funds, but the small-caps funds have gone up to 30%, then your portfolio will be rebalanced. 10% of your small-caps funds will be sold off and redistributed, reverting to a holding of 20% in small-caps funds.

The Upside: This consistent and disciplined practice protects you from bad market runs. In the example above, should your small-caps fund see a large drop, the rebalancing of your portfolio will make you less exposed to the drop.

The Downside: This consistent and disciplined practice limits you from good market runs. Should your small-caps fund continue to run higher, the rebalancing of your portfolio will limit your gains from the run.

The Bottom Line: Professional Portfolio Management applies consistent and disciplined practice regardless of the market conditions to keep your portfolio in check. The result is a “smoother” ride to your financial goal.

Develop a System and Employ Discipline
Dan told me a story about his friend in the dot com age. His friend took on a second home mortgage loan and sock the money in the stock market. In the beginning, his friend increased his stock portfolio ten folds and decided to quit his job. His friend thought it was way too easy to make money and decided to quit his job. Obviously, it didn’t take long for him to get a wake up call. In the year 2000, the stock market crashed and Dan’s friend lost 90% of his stock portfolio in a very short period of time.

Dan stressed it is important to develop a system in investing and whatever that system is, be very disciplined in it. It could be selling a stock once you reach ha 20% profit, or cutting losses at a 10% drop. Whatever the system is, you must follow it consistently and not let emotions interfere with your judgment.

For Dan, he leaves his money to portfolio management because he doesn’t have the time or interest to follow the market. He admits that during the good market years, he misses on some gains, but is willing to give up those gains for a well-protected portfolio. During the bad market years, he is less impacted from the sharp drops. He hardly looks at his portfolio. He doesn’t want to let his emotions distract him from his goal.
I agree with this point. I think the common people should leave the portfolio management to the professionals or to a very disciplined system. I am planning to leave a portion of my money to professional management in the future and concentrate more on my entrepreneurship.

Success Stories from Independent Trading
I asked if Dan knows of any person who makes good money by trading. He told me he has a client who has been trading for 20 years and the client has returns of 20% annually. Dan’s client has outperformed the market by a wide margin. But Dan noted that the average investor does not beat the market consistently. Many mutual funds and individual investors trail the S&P500 over the long run. Still, with that said, there are people who are passionate and disciplined enough to play in the market, have reaped great profits.

It’s good to know that people have beaten the market even over the years. I have been outperforming the market every year so far. I hope I can continue to beat the market.

One thought on “A Meeting With My Financial Planning Consultant

  1. Jason

    Why would you need a financial planner to rebalance your portfolio for you? Not saying a professional planner is necessarily good or bad, but once you have your target asset allocation, it’ll take about an hour’s effort each year to do the math and click a few buttons online.


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