Can we help you find something?

Big Questions for Money Moments

Your diversification moment has arrived. Do you helicopter drop your cash into a risk-oriented, diversified investment portfolio, or do you take your time?

ASK AN EXPERT

On one hand, the stock market goes up more often than it goes down. Stock returns are also usually higher than bond returns. Thus, on average, a helicopter drop into a risk/stock-oriented, diversified investment portfolio will outperform a phased implementation into that same portfolio over time. On the other hand, forecasting short-term returns for stocks is a loser’s game and a big loss via a stock market correction can be psychologically devastating, especially for investors with newfound wealth and little experience managing it. A bad experience on the front end can therefore jeopardize long-term success. When it comes to managing wealth, the long game is the game that matters. While not always, we typically recommend taking a breath and easing new cash into the market over a period of one to two years. This process entails implementing a portfolio at a stock allocation (including residual company stock, if any) that is below the long-term target, and purchasing more stocks over scheduled tranches until the long-term allocation is reached. Again, on average, this is a losing strategy! Probabilistically, you can’t buy stocks soon enough. On balance, however, a phased implementation is often a very sensible approach for several reasons:

  • Investing is a marathon, not a sprint; and protecting yourself against a poor experience on the front end may be a prudent path forward.
  • The U.S. stock market, in particular, is rather expensive from a valuation perspective.
  • A phased implementation provides flexibility to accelerate stock purchases in a declining market or slow stock purchases in a rising market.

Another area of focus on the front end is bucketing assets into categories and aligning investment strategies with each bucket. For example, many clients who come into a large sum of liquid wealth want to acquire or upgrade a home. If the timing of that significant expenditure is short-term, a more conservative investment allocation for that bucket (as compared to, say, a “nest egg” bucket) is likely warranted to reduce loss exposure. In other words, it makes sense to accept lower expected returns for these assets because downside protection is more important than growth potential. Bucketing assets in accordance with defined objectives, coupled with forming investment strategies tailored to your time horizon, are key building blocks to successfully managing wealth through time.


Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Florida, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security.


Meet the Author

Aaron Waxman

Partner

Aaron is a Partner based in the San Francisco office. He provides comprehensive investment and planning advice to individuals. While Aaron works with a wide array of clients, he has expertise in working with multigenerational families, business executives, and entrepreneurs with above average income and estate tax planning needs.

Before joining Cerity Partners, Aaron was a Principal at B|O|S and served on the firm’s Board of Managers, strategizing firm-wide initiatives and making critical decisions on the day-to-day functioning of the firm. Prior to B|O|S, he worked for PricewaterhouseCoopers LLP as a Manager in the Private Client Services Group.

Aaron placed on the Forbes “Best-In-State Wealth Advisors” list for the San Francisco region in 2019, 2020, and 2021. In 2019 he also ranked on Forbes “Top Next-Gen Best-in-State Wealth Advisors” list for California and on its “Top Next-Gen Wealth Advisors” list. Additionally, in 2017, Aaron was the recipient of a “40 Under 40 Award” by the San Francisco Business Times.

Aaron earned his Bachelor of Science in Finance from Santa Clara University. He holds both the Certified Financial Planner (CFP®) and Certified Public Accountant (CPA) designations as well as a Series 65 license. Aaron is a member of the Stern Grove Festival Association Board of Directors. He previously served on the Board of Directors for the Headlands Center for the Arts, Step One School, and Blind Babies Foundation.

Connect with Aaron

Ask An Expert

Have your own money moment question? Ask one of our experts.

Sign Up for Market & Economic Outlooks

Get the latest insights and analysis from our investment team delivered right to your inbox.