Foundation Wealth partner James Pelmore on the basics of building your family’s wealth
Sound investment discipline is an extremely effective way to build wealth, but life’s complexities can distract us from our intended investment policy and strategy. Therein lies the rub—what is keeping you from better investment results? It likely isn’t investment choices or fees.
James Pelmore, a partner with Foundation Wealth Partners, references five points he believes are essential for portfolios to thrive in good and bad times.
“It is imperative that clients have realistic and shared expectations to prevail during times of uncertainty,” he says. “Many investors become unnerved by volatility and panic, the result being counterproductive actions such as selling low and buying high.”
Pelmore’s first point is to work with a professional advisor, one with a fiduciary duty to you. A professional advisor communicates that volatility is inevitable and takes action in response to volatile times—such as rebalancing one’s portfolio (sell high, buy low).”
Pelmore’s second point is to embrace volatility. “Most clients are inexperienced investors who wrongly assess market volatility as a risk of losing money—which inhibits their investment exposure,” he says. “In a diversified portfolio, some holdings have substantial volatility, but these are not speculative investments risking it all; they just jump around, making higher returns over time.”
“The stock market is the only store that’s empty during a 50 percent off sale. A portfolio manager, working to an Investment Policy Statement will maintain a disciplined investment strategy through the whipsaw of market volatility.”
The third point concerns external influences. “Most investors don’t consider the impact inflation and taxes have on their investment returns, but they must,” says Pelmore. Interest, dividends and capital gains are taxed differently. “Shelter interest income and create tax-efficient portfolios for the balance of investments to improve after-tax returns,” he advises.
Pelmore’s fourth point involves “the race to the bottom in fees.” Money continues to move from managed funds to lower-fee index funds. “We like index funds; we use them. The problem is do-it-yourself investors making bad decisions. People don’t practice self-dentistry because results are immediate and painful, but not with DIY investing. That takes time and a market correction to experience self-inflicted, high-impact suffering.
“The price of good advice is never free. We earn our money in bad markets—managing client expectations, imposing investment discipline and remaining calm.” This begins with a process, one that leads to a trusted relationship and shared investment experience.
The fifth point is to develop a personal, trusted relationship with your financial advisor and check in with them before making important financial decisions. For James, much of the joy in his work is from helping transition the governance and ownership of many family businesses to the next generation, along with family holdings and investments.
“The role of a Family Enterprise Advisor is purposeful and complex. We engage with a family’s other professional advisors in a multi-disciplinary approach. Transparency, accountability, communication, knowledge, truth and wisdom guide our relationships.”
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