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    Seed Weekly - The Holistic View

    It is very important to optimize a client’s investment portfolio on a proper risk adjusted basis and the only way to do this accurately is by looking at the client’s investments on a holistic or “all inclusive” basis.

    I will illustrate by using the following example:
    John Doe is a 50 year old male that inherits R 4m from the passing of his parents. John approaches his financial advisor for advice on investing the R 4m.

    His asset base (before inheritance) consists of:

    We have assumed that the Family Trust is invested in income centric assets (as most of the other beneficiaries require a high level of income). His asset allocation (before inheritance) is replicated below:

    The advisor has 2 options with how he goes about giving John advice:

    Option 1:
    Establish an asset allocation based on John’s needs and advise him to invest the money in a well-diversified portfolio that matches this asset allocation. In this option the advisor only takes the R 4m inheritance into account when making the recommendation.
    Option 2:
    Here the advisor first considers John’s current asset base, establishes an asset allocation based on his needs and then decides how he can optimize John’s entire portfolio with the additional cash flow.

    We have assumed that John’s target asset allocation is as follows:

    The chart below shows the outcome of the 2 options described above. In Option 1 John invests into a portfolio that mimics his target asset allocation (described above). In Option 2 John invests 50% of the inheritance in equity and 50% globally and in doing so gets a lot closer (on a composite basis) to his target asset allocation than had his advisor given him advice purely focused on investing the inheritance.

    Option 1 would have been perfect had John not had any other investments, but the importance of taking a holistic approach is clearly illustrated in this example. The advisor not only needs the required tools to ensure that the initial advice is holistically based, but that his clients’ portfolio are continually tracked on this basis so that he can ensure that his clients’ portfolios are in alignment with the optimal strategy.

    At Seed we have developed the planning and reporting tools that ensure that we take great care, not only in planning holistically, but also reporting monthly on all of our clients’ investments, even the portion that isn’t under our management.

    Kind regards,

    Renier Hugo

    021 914 4966

    Permalink2014-05-20, 11:39:30, by Mike Email , Leave a comment
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