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Beyond Investments

The Value of an Advisor

Investment managers who use financial planning add value in ways not easily measured. Both Vanguard and Morningstar have attempted to quantify what that value might be. Morningstar estimated that more than 1.5% in real after-tax returns could be added by intelligent financial planning decisions.1 Vanguard has calculated that number to be up to 3%.2 Whatever the number is, we do know smart planning decisions add value to clients that investment management alone cannot.

Here is how we add value:

Smart asset location decisions. Placing tax efficient investments in taxable accounts and investments that provide ordinary income in tax deferred accounts. This practice can enhance the after-tax return of your investment portfolio.

Goal-focused, stable investment strategy. By carefully connecting your portfolio choices with your financial goals, you are relieved of the need to make reactionary changes to investment strategy based on recent market performance or your own emotions.

Tax-aware withdrawal source decisions. Taking regular withdrawals from an investment portfolio adds both complexity and opportunity. Balancing taxable income from IRAs or annuities with tax-efficient or tax-free distributions from after-tax accounts can help to control or reduce your tax bill.

Appropriate Roth contributions and conversions. Lower-earning years represent great opportunities for investing in a Roth; that is not the case as your income increases. Likewise, in years where your income may be very low, you may be able to convert part of your IRA to a Roth IRA and pay very little in taxes.

Total wealth asset allocation. Looking at your “total wealth” — and not just your investable assets — may increase your capacity to take portfolio risk. A client with a large pension or another reliable income source can typically withstand more market volatility than a client whose entire income must come from her portfolio. Your age does not dictate your investment strategy.

Tax loss harvesting. Selling positions that have losses and repurchasing similar positions later on allows you to capture tax losses now, and use them later to offset tax effects of future gains. This is a low- or no-cost way to reduce capital gains taxation, and to keep more of what you earned.

Behavior coaching. Ongoing guidance to help you adhere to your financial plan and strategies has a strong impact on you meeting your goals and your overall portfolio.

1 David Blanchett, CFA, CFP® and Paul Kaplan, PhD, CFA, “Alpha, Beta and Now … Gamma,” paper prepared for Morningstar Investment Management, 28 August 2013

2 Francis M. Kinniry, Jr., Colleen M. Jaconetti, Michael A. DiJoseph and Yan Zibering, 2014. “Putting a value on your value: quantifying Vanguard Advisor’s Alpha.” Valley Forge, Pa.: The Vanguard Group.

Investing involves risk including loss of principal. No strategy, including asset allocation, assures success or protects against loss. We suggest that you discuss your specific situation with a qualified tax advisor before making any investment decision.