By Professor Rick Ulivi

Since I retired from full time teaching last May, I have more time available to serve a few more clients.  To help me in this endeavor, I hired Mr. John Welches to improve my marketing message. As a first step, he wanted to talk to a few clients to get some feedback, and he did so. He got some very valuable input, and he will use this to shape my brand. I greatly appreciate the time some of you took to talk to John.

One of the comments expressed by the majority of those interviewed surprised me.  It was mentioned that you would like to receive more “investment tips” from me.  That’s a tough one.  I’ve given some thought to this and would like to address the issue with you.  Let me explain my reasons for not offering tips on a regular basis.

Focus on the Long Term

First of all, I believe in focusing on the long term to achieve meaningful results.  My favorite motto is the Italian “One step at a time, you will go far and stay healthy.”  I live by that, and I apply it to my investment approach.  Personally, I taught for 35 years at the university, I’ve been in the same house for 28 years, the same office for 25 years and married to the same woman for 39 years!  I may be boring, but I certainly focus on the long term!

Where investments are concerned, I apply the same approach.  This means that, once we decide how to invest a portfolio, we stick to the approach.  Portfolios are diversified by asset classes, and within each asset class, the portfolios are further diversified using super low cost index funds.  But we don’t make many changes.  That’s because the guides that I use to build client portfolios, CalPERS and OCERS, have very successful long term track records, and they follow a disciplined asset allocation approach.  That is, they vary their mixes on occasion, but only slightly. They believe that the combination of asset classes they use is the best way to achieve their long term investment objectives; their goals are to earn an average return 7.5% and 7.25% respectively.

I see very little need to deviate from the approach followed by these public pension plans, because their investment objectives are identical to what most of my clients would like to achieve and their performance is excellent.  Why re-invent the wheel?

Tactical Allocation

I am willing, however, to adjust a client’s allocations compared to the pension plans based on my analysis of the current financial situation and/or on each client’s unique risk profile.  This is known as Tactical Allocation. The main reason I make short term changes to a portfolio’s allocation is because I am firmly convinced that my clients would prefer to give up potential profits rather than to take losses.  In other words, preservation of capital is more important than making money.

This does not mean that either my clients or I would rather keep our money under our mattresses.  We all understand that to earn an average return in the 7% range requires assuming a certain risk level.  This guarantees that portfolios will experience ups and downs.  Yet, I try to minimize the downs without losing focus on the need to achieve our long term rate of return goal.

A Few Tips I Do Offer

I hope this explains why I don’t offer more investment tips.  I do, however, encourage clients to take advantage of any opportunities that I think are valuable and consistent with my focus on the long term.  For example, recommending that clients refinance now in order to take advantage of historically low interest rates.  Or, encouraging others to increase their savings rate to insure a continuity of their chosen lifestyle during retirement.  In some cases, I prod clients to spend more–yes, spend more.  Some clients are outstanding money managers, and they get more joy from saving than spending; nevertheless, I encourage a bit more largesse.

I hope you understand that my focus on the long term is the right approach to building and maintaining financial security. And if you have any other comments, I would appreciate receiving them too.