Guided wealth portfolios (GWPs) are designed to provide a diversified, customized portfolio that's tailored to your investment needs. With a GWP, you won't need to track how the market's moving or decide whether to rebalance—your financial professional handles these decisions for you, moving funds as needed to comport with your stated goals and investment philosophy. Below are five things everyone should know about the process of investing in a GWP.
Process and Philosophy: Exchange-Traded Funds
GWPs are composed of low-cost exchange-traded funds (ETFs). These funds allow for diversification and investment efficiency without adding cost. An ETF trades on an exchange, like a stock, but is composed of groups of investments and is designed to track the return of a specific index (like the S&P 500 or Dow Jones).
Your GWP may contain up to 10 ETFs, each with its own investment objective and risk profile.
Choosing Your Investment Objective
Everyone's investment goals and objectives are different. The answers to these three questions will dictate the returns and risk allocation you should seek in your investments.
- What are your investment goals? A comfortable retirement? A once-in-a-lifetime family vacation? An inheritance for your heirs? Or all of the above?
- What's your investment horizon? The longer you have before you plan to draw on these funds, the more aggressive you can be.
- What's your risk tolerance? Higher risk can mean higher returns, but it's important to have an investment strategy that lets you sleep well at night.
Five Primary Investment Objectives
Investment objectives can be grouped into roughly five categories.
- Aggressive growth
- Growth
- Growth with income
- Income with moderate growth
- Income with capital preservation
You'll use your goals, horizon, and risk tolerance to determine which investment objective(s) are closest to your desired portfolio.
Letting Your Goals Dictate Your Portfolio Allocation
Whatever your goal, your portfolio allocation should reflect it.
Retirement Goal
It can be hard to imagine what retirement will look like. If your GWP is being invested for retirement, we'll provide a portfolio glidepath that will show you the estimated progression for each year from now until retirement.
Major Purchase Goal
A glidepath can also be useful when tracking your progress toward a major purchase (like a vacation, new home, or college tuition). This glidepath will provide you with a customized look at what returns you'll need to help work towards this goal and how much you'll need to invest to get there.
General Investing Goal
If you're opting to invest for general purposes, and not to meet a specific goal, there's less need for a portfolio glidepath. Instead, you'll be assigned a static allocation based on your investment objectives. Should your objectives shift in the future, it's easy to modify your portfolio to account for these changes.
Assessing Fees and Costs
In exchange for creating and overseeing a customized GWP, your financial professional will charge a reasonable management fee.
LPL Financial also charges a program fee of 0.95 percent of assets under management.
Engaging in Enhanced Investment Strategies
With the financial landscape constantly changing, a "set it and forget it" attitude toward your investments just doesn't work in the GWP context.
Rebalancing
Few funds gain value at the same speed, and over time, a balanced allocation can be thrown out of whack by outsized returns from certain sectors. Your financial professional will assess your allocations regularly and make any changes to your GWP that are needed to keep it in line with your goals and objectives.
Tax-Saving Strategies
The less you have to pay in taxes on your investment gains, the higher your return. Your financial professional will always look for tax-harvesting strategies that can help you reduce your overall tax burden.
Important Disclosures:
With your free dynamic proposal, you will have access to sample recommendations at no charge to you. If you decide to open a GWP investment management account, you will be charged a quarterly account fee, as well as certain additional costs such as underlying investment fees and expenses and other miscellaneous fees. If you decide to implement sample recommendations in the proposal with another firm, you may be charged fees, commissions, or expenses by that firm, as well as underlying investment fees and expenses.
An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as non-diversification, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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