A comprehensive wealth plan travels far beyond how much Tesla stock you want in your portfolio.
There’s an immense difference between investing in individual stocks, companies, or ventures and comprehensive investing.
But what is that difference, and why does it matter, not only to us but also to your long-term financial success?
At Toberman Wealth, we’re passionate about comprehensive investing because it considers your entire picture—financial and personal— over the long-term, not just what’s front and center at the moment.
The Problems With A Single Stock Approach
Investing in single stocks isn’t necessarily “bad”; it just isn’t a sustainable, holistic practice. Some people enjoy investing in single stocks if they are attached to a particular company or want to support something specifically.
Buying individual stocks can also give investors flexibility and control over their fees in the short term. But investing isn’t really about the short-term, is it? Investing is about building wealth to reach your goals and secure the future you’ve dreamed of.
So, while individual stock picking may not be so bad when one or two shares are on the line, it can present several holes when you consider your entire portfolio.
Lack Of Diversification
It’s tough to achieve and maintain the desired diversification needed on just a few single stock picks alone.
And remember, diversification helps balance risk in your portfolio. When you invest in diverse sectors, industries, assets, etc., those holdings react differently to market conditions and can balance out short-term fluctuations.
Think about diversification as a layer of protection in a rainstorm. While you may not be able to stop the rain, a water-resistant jacket can keep you dry, at least partially.
Most investors benefit from a balanced portfolio with exposure to both small and large-cap equities, fixed income (bonds), real estate, and other major asset classes.
Increase In Risk
A lack of diversification can lead to a domino effect of taking on more risk than necessary.
Concentrating more funds in one entity, stock, or company exposes your portfolio to more financial volatility. If 50% of your portfolio is Apple stock, and it experiences a 15% dip, your portfolio will feel the impacts more than if you had other elements to balance itself out.
It’s critical to understand your unique risk tolerance and capacity so you can create your asset allocation (the type of securities you invest in) with intention and purpose.
Leans More Towards An Active Management Strategy
In financial planning, there are two general types of investment philosophies: active and passive.
A passive investment strategy prioritizes a diversified portfolio built for the long term. The goal isn’t to “beat” the market, rather match it. Passive investments tend to follow underlying indexes via index funds, ETFs, etc. Since there isn’t as much buying and selling, costs tend to be fewer, and it’s often rather tax-efficient.
An active management strategy, on the other hand, aims to beat the market and requires much more frequent buying and selling of stocks. Securities themselves tend to be more expensive (high expense ratios), and many come with extensive trading and broker fees. The frequent activity also makes this approach less tax-efficient.
If you rely on picking individual stocks, you’re trying to “beat” the market and will likely spend a lot of money trying to do so. For us, it’s not about timing the market, but how much time you spend in the market that counts.
Lack Of Future Projections
Investing in a particular company isn’t the same as investing in the S&P 500. With a broader index like the S&P 500 and the DOW, you can use historical data to help inform some of your decisions.
Records show that since the S&P 500’s inception in 1926, it’s produced an average annual return of 10-11%. That’s nearly 100 years of data!
But if you can’t prove a long-term history of success, it’s incredibly risky to bet your retirement savings on Apple, Tesla, and a handful of other popular stocks.
What Goes Into A Comprehensive Approach?
A comprehensive approach to investing is more holistic and personalized to each investor.
Comprehensive investing considers the following:
Risk: A comprehensive approach evaluates your risk tolerance, risk capacity, and need to take risks. It’s instrumental in portfolio construction. When you understand your risk profile, you can better manage it long-term and invest in ways that make the most sense to you.
Time Horizon: How long do you plan to invest? Knowing the answer to this question helps you invest more strategically. It can also provide insight into where to house your investments, the risk you can “afford” to take, and the liquidity you need.
Asset Allocation: Instead of buying a single security that makes up one small sliver of the global investable universe, a comprehensive approach centers around proper asset allocation. This involves the asset classes and types of securities you invest in and the intentional rebalancing to maintain adequate risk levels. You do not have to rely on one stock, company, or industry to fund your goals.
Goals: What are you investing for, and how can the other elements of your financial plan work together to support your vision?
With a comprehensive approach, you think through your entire financial and personal picture. It becomes a much more engaging, thoughtful, and personal process. Now, you can invest intentionally in ways that are aligned with your specific financial goals.
Why We’re Passionate About Comprehensive Investment Planning
We strongly believe that comprehensive financial planning with an investment advisor is the best avenue to reach your life and financial goals.
You Are More Attuned To Your Investment Habits
Investing is emotional, and we’ve seen firsthand how concentration in individual securities can lead to adverse outcomes. But, we’ve also seen concentration lead to extreme wealth generation. That experience is like winning the lottery, a sporadic occurrence and not representative of the everyday experience most investors face.
It Focuses on Long-Term and Strategy-Driven Processes
A comprehensive approach is even more integral for long-term goals like retirement. Perhaps the last thing you want to do is bet your life savings on a hunch or trend. You want a deliberate, thoughtful, and strategic plan to usher you into your golden years and beyond.
Comprehensive investing takes a more strategic look at risk—how much risk you want to take, how much you can take, and how much you need to take to reach your goals. Diversification can help solve many risk concerns, and since it’s a core tenant of comprehensive investing, it can help insulate your portfolio from intense market swings.
We Interweave Tax Planning Into The Mix
We can also look more critically and strategically at your taxes. With a comprehensive plan, including tax planning with a financial advisor, we have more opportunities to optimize your tax planning and future income planning. Asset classes have different characteristics—a stock operates differently from a bond—which allows for more flexibility in what your portfolio can do for you.
It Prioritizes Time In, Not Timing The Market
Finally, comprehensive planning eliminates the idea that we have a crystal ball to determine your financial future. No one can predict your financial future with 100% accuracy, and a comprehensive approach takes away the pressure to do so.
Here, we don’t try to time the market or aggressively beat its outcomes. We’re all about helping you build a sound, robust financial plan that helps you live a more meaningful life.
For most of us, the goal is not to see how wealthy we can possibly get, but to maximize our chances of maintaining a state of comfortable financial independence for the rest of our life.
At Toberman Wealth, we bring thoughtfulness, care, and strategy to your financial plan. Is your investment strategy comprehensive and aligned with your financial vision? Learn more about how we can help you today!
Please contact us for more information.
Craig Toberman is the Founder of Toberman Wealth – a fee-only financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.
Craig received a Bachelor of Science (B.S.) degree in Agricultural and Consumer Economics from the University of Illinois and a Master of Business Administration (M.B.A.) degree in Finance from Saint Louis University. He is a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) charterholder, and Certified Public Accountant (CPA).
Craig is a member of the National Association of Personal Financial Advisors (NAPFA), Fee-Only Network, and XY Planning Network.
Craig lives in the greater St. Louis area with his wife, Ally and son, Hank.