How a portfolio is constructed and the investment philosophy that is followed has huge implications for the amount of wealth surplus leftover for legacy giving, and the ramifications of portfolio management become greater the larger your portfolio grows. The Venn diagram shown here perfectly illustrates sound investment methodology: it is the middle overlap area – the things we can control that actually affect portfolio performance – that we want to focus on when it comes to investing. There are only a handful of things that fall in that overlap area (for example, asset allocation, maximizing diversification, minimizing costs, minimizing taxes, rebalancing, maintaining discipline over the long term, etc.), so we really want to get them right.
Speaking of long-term discipline, studies have shown that the average investor underperforms the stock market by about 2% annually (that’s a big bite out of your future legacy giving when compounded over many years!), and it’s typically because emotions have clouded the investor’s judgment. Emotions and investing just don’t mix well. The investor who panics in a down market and pulls out of the market usually ends up locking in losses, and by the time they feel more comfortable getting back into the market, most of the recovery has already happened. So, they end up shooting themselves in the foot on the way down and on the way back up. Fortunately, that doesn’t have to be your story, because at Charis Legacy Partners we effectively serve as an emotional circuit breaker; since we don’t have the same emotional connection to your portfolio that you do, we can help you to maintain the long-term perspective needed to fully capture the long-term market return.
Additionally, we use best-in-class investment management software that features daily automated rebalancing (if the portfolio has drifted from the target allocation). Over time, as markets fluctuate, stocks typically grow faster than bonds or cash, so your portfolio will tend to drift more aggressive and become stock heavy. Rebalancing involves selling the relatively outperforming asset and buying the relatively underperforming asset to stay on track with your target allocation. Not only does this ensure you stay within the appropriate risk range, but every time we rebalance, we are effectively selling high and buying low – not a bad formula for investment success. This software also features automated tax loss harvesting and lot-level trading, allowing for precision tax-efficiency, thus preserving more of your wealth surplus for legacy giving.