How Can We Help?
At Cornerstone Investment Advisors we offer guidance in six broad areas of planning and investing. The need for a solution often reveals itself in the form of a question. Many times the question is well formed, but sometimes it is not completely clear. In any case, it can be useful to see a list of planning and investment questions that are frequently heard in our practice.
Visit our SOLUTIONS page to see a representative list of issues that we have assisted our clients with over the years. Many people are able to find several that apply. We take pride in offering objective, thoughtful advice on these issues as well as others that may be unique to your own situation.
Investment Management Services
Our approach to investing stands out from the crowd. First, we use statistical measures plus qualitative evaluation to identify quality investment vehicles in 17 different categories of investments. We often utilize investment managers who have statistically demonstrated a consistent ability to add value over the long haul. These managers add value by doing what they do best, in their own areas of expertise, without undue influence from the greed and fear that commonly afflict Wall Street.
Next, selected assets are combined into a portfolio and closely monitored to ensure that the portfolio’s risk and return characteristics remain within desired levels. The goal is to identify assets that, when combined, form a whole that is greater than the sum of the parts. The result is a Globally Diversified Portfolio designed to meet your long-term goals while remaining strictly within your tolerance for the inevitable ups and downs of the stock market.
Financial Planning Services
What is financial planning, anyway? The concept is quite simple. Many of our most important life goals require expenditures of money at various times in the future. The job of financial planning is to: 1) clarify the goals and 2) determine whether anticipated patterns of income, spending, saving, and investing over the years will result in enough money being available, exactly when it is needed, for every anticipated future expenditure (including monthly living expenses during retirement). If not, we make adjustments to the patterns and/or revise the goals until we can cover the expenditures as they come up. How do we know if there will be enough money for a future expenditure? We calculate income amounts, spending amounts, and savings deposit/withdrawal amounts year by year into the future to see if the investment portfolio will ever reach dangerously low levels.
One thing is sure. No one wants to run out of money in old age.
The traditional approach. Advisors who follow the traditional approach to financial planning use a single historically-derived average rate of return to calculate portfolio balances in future years. Of course, real portfolios don’t work that way. In the real world, market returns can vary widely from year to year. If nothing is done to account for this variation, financial plans can have a 50% chance of failing!
To account for market uncertainty, traditional planners sometimes “cushion” their return and/or inflation estimates by a percent or so. For example, they might use 7% for porfolio return instead of 8%, and 4% annual inflation instead of 3%. Unfortunately, these represent unsubstantiated guesses rather than research-inspired adjustments. How much does this approach to planning reduce the chance of failure? We can only guess.
A better approach. At Cornerstone Investment Advisors, we always use what we believe are best estimates available for future investment returns and for annual inflation. We then perform computer simulations of the ups and downs of the investment markets as portfolio balances are projected forward year after year.
Market simulation allows us to realistically calculate a plan’s probability of success. Using the power of the computer we repeatedly project cash flows all the way forward to life expectancy, in 1000 separate trials, keeping track of the number of trials in which the overall portfolio remains solvent to the end. For example, if 950 of the trials never show a zero balance (i.e., would never require a downward adjustment in lifestyle at any point in time), then the success rate is calculated as 950/1000 = 95%. We believe this results in a much more robust plan that can better weather the realities of the ups and downs of investment markets over the years.