Financial Opinion and Insights

A Portfolio Review Isn’t An Investment Plan

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

You’ve seen it a thousand times:  Financial advisors use `free’ portfolio reviews as a way of introducing themselves and their services, as well as to demonstrate their competence and capabilities.   Nothing wrong with that; I’ve done it myself! 

The usual process is that the client furnishes his or her most recent tax return and a copy of all their investment statements.  This gives the financial advisor a clear picture of the client’s current financial situation.  The advisor is then able to run a sophisticated analysis revealing individual, as well as total portfolio, annualized raw and risk-adjusted return figures, tax efficiency, and expenses, as well as visually depict how ‘optimized’ the asset allocation is against an ‘efficient frontier’ – which is financial `geek-speak’ for seeing if you’re taking too much risk for the return you’re achieving.

All of this will give you some indication regarding the characteristics of your portfolio; but it won’t tell you if you have the right portfolio for YOU! 

Example:  There was a time when a basket full of high-tech stocks were outperforming all other investments.  One might think that’s a good portfolio; but, would it be appropriate for someone with a family, a mortgage, trying to fund college educations, and supporting an elderly parent who needs constant care?   All of a sudden, that basket looks more like a gamble than a good investment strategy. 

Ya’ think?

It would be easy to construct three different portfolios, all of which would look good; but, would they be appropriate for you?   It could be that only one is truly in your best interest.

Like most things in life, it all starts with a plan.

Try to imagine someone deciding to build a house without a blueprint.    What would the house look like if they ordered materials and tools and began construction?  — all without any plans on paper.

That’s exactly how millions of American’s approach their financial futures today – any also why so few are adequately prepared.   Even if their portfolio review looked good, which it rarely does since everything was usually selected in an ad-hoc fashion, they’re still in virtually all cases not meeting their goals.

Food for thought.


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™  now in his 19th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.