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Introducing TD's Client-Centric approach to Wealth Management
Your Future, Thoughtfully Planned Out
Dominick Costa
VP, Investments, Planning, Annuity & Insurance Solutions
Sid Vaidya, CFA, CAIA
US Wealth Chief Investment Strategist & Senior Portfolio Manager Officer
Luisa Barone
Product Manager, Advisory Solutions & Wealth Planning
Mark Hasenauer
Wealth Planning & Goals Based Advice Leader (US)
Nick Dedes
Senior Portfolio Manager & Head of Portfolio Construction
Sean Macklin
Analyst, TD Wealth Chief Investment Office
Peter Guiffre
Marketing Communications Manager
INVESTMENTS, SECURITIES AND ANNUITIES |
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NOT A DEPOSIT |
NOT FDIC-INSURED |
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY |
NOT GUARANTEED BY THE BANK |
MAY GO DOWN IN VALUE |
TD's Client-Centric approach to Wealth Management emphasizes the goal of helping you understand how you can generate adequate income, grow capital, and set expectations for your wealth before, during and beyond your retirement years.
Investors and retirees must understand and define what financial success looks like to them. Each client's financial journey may look different so understanding and weighing diverse factors such as long-term care, risk tolerance, market volatility, and goals/needs in retirement is crucial in planning for the future.
We will define our approach to setting goals, guide you in organizing your assets into three distinct buckets (Liquid, Growth, Legacy), and explain how to manage your spending needs prior to and into retirement.
Our personal approach begins with getting to know you, your lifestyle, and important people and activities in your life. Working in partnership, your advisor will deliver disciplined, analytical recommendations related to investing, borrowing, earning, and spending. Your advisor will help you develop, prioritize, and track your financial progress and probability of meeting your goals.
At TD, we offer goals-based wealth planning that is a customized, more personal, and interactive approach to plan for long-term financial goals. As your financial needs become more sophisticated, our goals-based wealth plan will adjust to provide a strategy based on your updated goals, objectives, and personal circumstances.
Whether you are creating a budget to save for a specific goal or developing a complex legacy plan, our advisors have the tools and expertise to support you.
Our approach allocates a client's wealth into three buckets:
- Liquid Assets: Liquid Assets serve an important role. They offer safety and liquidity, making them best suited for short-term spending needs, emergency funds, or those approaching retirement who seek stability. Assets in the Liquidity bucket are allocated to align with expenditures looking out over 12 months which may include an emergency fund, income taxes, and school payments.
- Growth Assets: Growth assets look at assets that will be with you for the remainder of your life. These assets are managed with your long-term goals in mind and help determine future spending obligations. A portfolio with a focus on diversification, downside protection, and lower volatility while growing your assets allows you to met your long-term goals. Your portfolio should have a balance between capital appreciation and capital preservation.
- Legacy Assets: Legacy assets exceed what you need to meet your life goals with. As an investor slowly spends their money in retirement, they may plan to leave assets behind to pass along to future generations or philanthropic endeavors.
Our approach sets up a blueprint for clients looking to understand how they can utilize their assets and liabilities in an effort to meet their life goals. The overall strategy will change over your lifetime as life events, both planned and unplanned take place.
Who needs a plan?
It is often thought that people with "Wealth" need a financial plan when in actuality, people on all levels of the wealth scale can benefit from a plan. One can argue that planning is more important when you have fewer assets since there is less room for error. The focal point of planning will change over time depending on where you are on the wealth spectrum, however, a well-thought-out financial plan is invaluable for individuals across all income brackets and expense levels. For example, someone early in their career may focus on creating good financial habits, creating a budget, begin funding their Growth bucket, or set up a 401K which can put them on a path to financial success. A wealthy client in retirement may need advice that focuses on the best path to leave their wealth to others. For others, the focus may be on planning for major retirement expenses or putting their children through college. No matter where you are in your career or how much wealth you've accumulated, the frameworks highlighted above can help with your long-term financial success.
Why do you need a plan?
Regardless of one's financial position, a financial plan provides structure and guidance for achieving short and long-term financial success and discipline. A financial plan can help mitigate emotional response to market volatility by managing difficult financial decisions or situations that may be in or out of your control. It is meant not only to create a foundation for your finances, but also to create financial opportunities for you whether that is saving, investing, or planning to leave assets and transfer wealth to your family members. Ultimately, a financial plan is an important resource for providing stability and a greater opportunity to achieve financial success.
Behavioral finance is the art of understanding how psychology and emotions impact investment decisions. An important part of the planning process is understanding what you're afraid of or how you may react to certain market situations. The more you and your advisor know about your investment bias, the easier it is to understand how much market loss you can truly tolerate.
Modern Portfolio Theory (MPT) is a method for selecting investments to maximize overall returns within an acceptable level of risk. This theory was made popular by American economist Harry Markowitz in his paper "Portfolio Selection", which was published in the Journal of Finance in 1952. One of the key assumptions of MPT is investors are rational and avoid unnecessary risk, investors have the same information, and investors are risk- adverse; for a given level of expected return, investors will always prefer the less risky portfolio.
Unfortunately, we don’t live in a perfect world as markets and human behavior are not always predictable or rational. Market performance can produce strong emotional reactions that may cloud decision making. The good news is a goals-based plan can help mitigate these emotions and keep you on track.
For example, an investor's emotions can sometimes lead them to buy at market peaks and sell market bottoms (Figure 2).
Understanding behavioral finance can help produce better performance, but how?
Investors often try to time the market (unsuccessfully) vs. staying invested through market cycles, taking advantage of down markets. We believe that investors should invest for the long-term. To that end, time in the market is more critical rather than timing the market in successfully achieving an investor's financial goals. Given the short-term volatility of stock prices and uncertainty in forecasting the future, it is extremely challenging to time the market and accurately predict when an investment is expected to reach its high or low. The best days in the markets often follow the worst. The Figure 3 chart shows how missing out on down markets can have a negative impact on the long-term growth of your portfolio. Down markets can be tough on your emotions but can prove to be very important to long term growth of assets.
If investors maintain a long-term, goals-based approach, even during periods of substantial market volatility, those that remain in the market tend to come out ahead in the long-term, compared to those seeking to capture short-term gains. History clearly indicates that staying invested has been the right decision over the past 40 years. In the 40-year period ending December 31, 2019, an all-fixed income portfolio generated nearly 7.5% per year on average while a 100% U.S. equity portfolio would have generated nearly 12% per year on average, as illustrated in the Figure 4 below (to access figure 4, please download the full PDF, which is at the bottom of the page). If an investor attempted to time the market and was unlucky, they may have experienced substantial losses. However, someone with a longer-term investment approach would have significantly increased their probability of realizing a far better return, over the same period.
At TD, we understand that human nature and emotions can lead investors to be unpredictable and often make decisions that are not optimal. The psychological pain of investment loss is twice as strong as the pleasure received by gains. It is natural in times of stress and fear to make short term survival decisions, which often results in selling at poor times.
Through our approach we can help to create a goals-based plan that may ease your emotions and allows you to work towards making optimal long-term decisions, even during market volatility. Your Liquidity bucket should ensure that you have cash on hand to handle day to day expenses, allowing your Growth assets to grow uninterrupted.
Figure 2: Investor emotions during market volatility
Figure 3: Time In Market, Not Timing The Market: Historically, investors who have focused on a long-term plan have achieved greater outcomes.
Source: FactSet. TD Wealth Chief Investment Office as of December 31, 2023. Past performance is not indicative of future results. The indices are a tool to compare the performance of one or more indices. The volatility and performance of the indices may be greater than or less than the volatility and performance of actual investments. Indices reflect the reinvestment of dividends and income. Indices do not have fees, expenses or taxes, which would lower performance. Indices are unmanaged and not available for direct investment.
What is sequence risk? Sequence risk is the risk of a down market environment at or around the time of your retirement.
Why this matters: When you are set to retire, your Growth assets may be arranged to fund your living expenses in retirement. Major losses in the market at retirement can jeopardize the long-term sustainability of your portfolio potentially resulting in your portfolio not lasting as long as originally planned.
Potential Impact: This could impact your lifestyle in retirement as you'll need to make adjustment due to the losses. In a down market as the value of your assets decrease, you may need to liquidate more assets to fund your living expenses. This results in less assets that can grow in retirement during a bull market thus replacing what you've spent. Economic shocks near or at retirement can significantly deteriorate your growth potential in the long-term, as it may lead to fewer investments to capture future growth when a market rebounds whereas economic shocks later in retirement may not affect your growth potential as significantly.
How your advisor can help: Although you may not be able to predict when a market downturn will occur, you can proactively prepare for these events as you get closer to retirement. Your advisor can work with you to review your goals-based plan and making needed adjustments to better prepare your portfolio as you move into retirement. This may include fully funding your Liquidity bucket, investing in less volatile assets, diversifying your portfolio, or using investments with a level of downside protection as you approach retirement.
Understanding our approach can be substantial for meeting your objectives for retirement and beyond. Keeping up with and monitoring your goals and objectives over time is key to your long-term financial success. As we navigate through life, our financial goals and objectives may change, and that’s okay, however, the best way to prepare for those changes is to work with your advisor who will be with you every step of the way. We use our approach to manage your assets effectively and appropriately throughout your financial journey. At TD, we recommend reviewing your goals-based financial plan at least one time a year, during extreme market movements, or when major life events take place to make sure your plan is up to date and aligned with your goals, objectives, and vision for your future.
If you'd like to read the full TD Wealth Planning Philosophy, please click the below to download. Also, check out Wealth Strategist (US), Ashley Weeks' interview, covering the Planning Philosophy below.