Insights to Secure a Healthy Financial Future

It comes as no surprise that investors expect financial advisors to be able to select profitable and suitable investments for client portfolios. There are three primary ways in which advisors approach this decision-making process. Some advisors rely on their home office or investment companies to perform the research and create a list of recommended investments. Others prefer to leave the investment decisions and asset management solely in the hands of a third party. Lastly, an advisor may prefer to perform their own research and analysis to determine suitable investments for their clients.

Active funds are not a one-man show. Management firms combine supercomputing capabilities with a multitude of field experts who have earned credentials like PhDs, MBAs, and CFA charterholders. Theoretically, then, these investment powerhouses have every advantage to produce funds that outperform benchmarks like the S&P 500®, yet they fail on a consistent basis[i]. I believe there are five major reasons why large-cap managers in particular fall short of the S&P 500®.

Whenever we decide to buy or sell something, we want to make sure we are getting a good deal. One of the ways we can do this is by benchmarking.

David Berns, Phd., author of Modern Asset Allocation for Wealth Management, discusses how to create portfolios for investors.