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It seems like at least once a year each of the main popular financial magazines and websites publish a list of “the seven things you need to know about your financial planner”, or “the ten questions you need to ask before you hire an investment advisor”. In light of the current market turbulence, today the Wall Street Journal put together a similar list: “Five Tougher Questions to Ask Your Adviser”. Here are their questions, and our answers.


  1. Is it time to rebalance? If not, why?

There are a couple of answers to this question. First, we rebalanced almost all of our client accounts in early February, so this last week’s market slide really doesn’t pull those accounts out of balance significantly. But second, we have recently made a couple of important changes to our mutual fund models, which we were just beginning to work into client portfolios when the fall-off began. A few accounts were traded, but not very many. We’ll wait until the market has settled down a bit before we push those changes through to other client accounts — while trying to avoid short-term tax issues, redemption fees, and so on.


  1. Are ETFs really better than mutual funds?

Better? Not necessarily. Most ETFs, “exchange traded funds”, are index-based and have very low expenses, which make them attractive to investment advisers — who have moved lots of their client assets from traditional mutual funds into ETFs. While regular mutual funds can only be traded once per day (at the end of the trading session), like stocks ETFs can be traded any time during the day. But as we have seen in the last few days, ETFs are also vulnerable to some strange price fluctuations during the course of a trading day, in a way that doesn’t reflect the price fluctuations of the underlying holdings of the fund. And while most of the mutual funds we use in client accounts are available to us with no transaction fees, ETFs can only be bought and sold for a fee. So while we use some ETFs in the largest mutual-fund accounts (and some special low-cost “institutional class shares” of regular mutual funds, which also trade for a transaction fee), we don’t feel it’s appropriate to use them for everyone.


  1. Do you use limit orders to limit risk? Which type?

Relatively few of our clients have individual stock accounts, and almost all of those are “unified managed accounts” held at Folio Investing. The individual stock selection for those accounts is managed (for the most part) by SRI-specialist portfolio management companies. And, since Folio Investing does not allow most types of limit orders, it’s not one of the tools we use to manage risk.


  1. What might cause you to alter your asset mix?

Our “strategic asset allocation” models are designed for the long haul, with the expectation that they will be able to withstand the sort of very strange markets we have seen in the last week. If this odd market action had pulled our client portfolios very far from their targets, we might have felt that a rebalance was needed — but that’s not how this has played out so far (see question 1). On the other hand, if our clients have had some significant life changes recently (unexpected retirement, marriage, the birth of a child), it is probably a good idea to review the current allocation, to see if it is still appropriate. But we can’t let today’s worries prevent tomorrow’s investment plan success, so we should look carefully at our long-term plans and how short-term dislocations might impact them, before we make any significant changes.


  1. What is on your shopping list?

The question behind this question is something like “Is there some asset / asset class that you would like to add to client portfolios, given the current prices?” But our portfolios are designed to be broadly diversified among the asset classes available to us – within the sustainable, responsible, impact (SRI) investing context that our clients expect of us. So unlike some advisors, we’re not loading up on oil and gas funds right now, but getting out of black energy exposure and into green energy instead. And instead of seeking government bonds as a “safe haven”, we’re looking for new opportunities in community development investments. This is part of our SRI commitment, yes, but it’s also an important part of our long-term thinking as well.


At Horizons, our main concern is for the long-term well-being of our clients. One of the ways we do that is by establishing a sound investment strategy, and then having the discipline to stick to it – even when so many market factors seem to be calling for us to abandon it. But our commitment to diligence, diversification, and diligence have served our clients well over the years. We’re comfortable with that.