The Secret Graph Your Financial Advisor Isn't Showing You

As the old saying goes, a picture is worth a thousand words. But that actually might depend on the picture. For instance, if you were to take a snapshot of your financial portfolio, what would it look like? Most financial advisors provide their clients with a pie chart, which assigns a color to each of your assets. It’s useful information, but it’s static. This picture only tells you what you own right now without shedding any insight into the different decisions you may have made over the past weeks, months, or even years to arrive at where you are today. That’s why we provide our clients with a much more powerful and insightful picture: a graph of their asset allocation over time. The power of using this graph, which we send to clients each quarter, is that it gives you a tool to evaluate the decisions made over time in your portfolio. You can tie every data point on this graph to a specific moment, such as a major market disruption or a shift in investing strategy. In the asset allocation over time graph above, for example, you might notice the amount of stock in this hypothetical client’s portfolio has grown over time–while the amount of bonds has shrunk. In 2009 perhaps it was necessary to have more liquidity as the client was starting a business, but as the business took off, the client could gradually take on more risk. The advantage we gain from using an asset allocation over time graph to shape our conversation, rather than rely on the static pie chart, is that we can talk through why these decisions were made when they were. Here’s another hypothetical example: In this case, you should notice a dramatic drop in the amount of stock, as well as a big increase in the amount of bonds in the portfolio. What would prompt this? Perhaps a client made the decision scale back and work part-time in 2010, then to fully retire a couple years later–which meant they could rebalance their portfolio to embrace a less risky mix of investments. What about that small shift in 2015? Good eye. This would give a hypothetical client the chance to question a change in investment strategy – like moving from one asset class to another. Using an asset allocation over time graph is an effective way to bring transparency to conversations with clients because it gives them the opportunity to ask questions about why we did something in the past they may have forgotten about. It then becomes a chance to evaluate those decisions with an eye on the future. While these decisions may not always work out, we believe clients deserve complete transparency about when these decisions were made and why. Viewing the asset allocation over time leads to far more productive and enlightening conversations than ignoring past decisions in a static pie chart. This mentality also enables us to not only consider the past and present, but also consider the types of questions we should be considering for the future. It’s also why we provide our clients with the 5 most important questions to ask each quarter. (We also provide them with the answers.) And because we believe everyone deserves access to better information, you can also access the top 5 questions you should be asking your financial advisor here. That’s why you should be asking your financial advisor to send you graphs like these. After all, if a picture is worth a thousand words, how much could the right picture be worth to the value of your portfolio?