The first step in any account relationship is to define the goal. Most of our clients fall into three general categories: Those that want income now, those that want income later, and those that will never want income. Regardless of which category fits you, an assessment of your risk tolerance and your investment experience must then be gauged, in order to define what we call your “deviation tolerance”—that is, the percentage of fluctuation in your account that you can tolerate before you start losing sleep. Certainly, the attainment of certain goals that have known time horizons are considered, like retirement or the purchase of a mountain home.
Once we have determined your risk tolerance, time horizon, and income need, the next step is to look at taxes. All of our model portfolios are either taxable or non-taxable. Obviously, if we are managing an IRA or some other tax-deferred or tax-free vehicle, we are not concerned with turnover, or holding periods, or the tax characterization of certain distributions or interest. In non-qualified accounts, however, the story is much different. These need special care so as to avoid short-term capital gains and ordinary income whenever possible. Thus, our tax efficient models often invest in state specific municipal bonds to eliminate both federal and state income taxes on our fixed income instruments. In addition, our equity positions are not rebalanced or reallocated without great thought given to the taxable realization and recognition in your account.
Having arrived at an appropriate model for your account’s allocation—e.g., how much is allocated to small cap growth, large cap growth, emerging markets, etc.—then the next step is to ‘plug in’ the best investment conduit available in the entire investment universe. Magellan Planning Group has established an Investment Committee made up of Kevin Meaders, Blake Bozeman, Len Bittner and Dale Erridge who meet regularly to assess market conditions and determine if changes to our model portfolios are appropriate. Our investment committee’s mandate is to research and obtain the best investment without regard to the type of investment. These can include individual issues, mutual funds, exchange-traded funds, unit investment trusts, real estate investment trusts, or enhanced index funds.
The initial investment is really only the beginning. Every week, our investment committee revisits the model portfolio holdings and tracks their performance daily.