NFG Wealth Advisors LLC
Chief Investment Strategist
Arturo Neto, CFA, is the founder of NFG Wealth Advisors - a boutique Registered Investment Advisor in the State of Florida that offers broad wealth advisory services to individuals and families as well as investment strategy and research services to small and mid-sized advisors.
Arturo was previously with EFG Capital from 2013 to December 2016 where he joined to co-lead the planning, development, and implementation of the Investment Strategy Group. He led the firm’s private placement due diligence efforts in addition to serving as a senior member of the team creating model portfolios, developing investment themes, managing tactical allocation strategies, monitoring portfolio management activities, conducting equity and mutual fund research, and preparing and delivering investment-related seminars and presentations. Prior to joining EFG, Arturo was an Investment Strategist at HSBC in a similar role.
During his 20 years of experience in financial services, he was also the Investment Officer for a Latin American multi-family office specializing in hedge fund and private equity investments and he has worked in a variety of roles within financial planning and analysis and strategic finance consulting. His career includes positions at Accenture, Gap Inc. American Express, and State Farm Insurance, as well as project work in a variety of other Fortune 500 companies. During his consulting and corporate finance tenures, Arturo’s primary focus was on practice management, process improvement, and financial analysis.
Arturo graduated from Florida International University with a Bachelor’s degree in Finance and a Master of Science in Finance degree and completed his Master of Business Administration degree from the Darden Graduate School of Business at the University of Virginia and he is a Chartered Financial Analyst (CFA).
He lives in South Miami and is married with one beautiful daughter.
MBA, Darden Graduate School of Business at the UVA
Assets Under Management:
Hi there, thank you for the opportunity to address your question. There are a variety of concepts you can use to guide the allocation of your portfolio and professional portfolio managers will probably use a greater number of them and in combinations that attempt to improve the probability of you attaining your goals. Below are a few I believe you can start with and expand from there as you become more familiar with the process of managing your portfolio.
- Goals - in order for you to figure out how to allocate your portfolio, you must first figure out your financial goals, including income needs/wants, other assets (including other investments), liabilities, income from other sources, and expenses, both fixed and variable. Generally speaking, this type of analysis is called a financial plan and it will serve as a guideline for how you should invest your portfolio.
- Asset allocation strategy - this is the concept of having an overall plan for your portfolio based on the financial goals identified in the financial plan. An asset allocation strategy will dictate your target return, risk tolerance, liquidity needs, tax situation, and others. It does this by defining how much of your portfolio will be allocated to each asset class, such as equity, fixed income, or alternatives (real estate, for example) such that the combination of these assets increases the probability of generating your desired return within the risk that you are comfortable with. The asset allocation strategy is comparable to a recipe for a good meal. The right combination of ingredients creates just the right level of tastes, fragrances, and textures for a fantastic meal. Where as a lack of cohesion or planning might result in a meal being too salty, or too heavy, etc. Too often we see portfolios of stocks that on their own make sound investments, but whose combination results in unwanted risks or exposures.
- Diversification - its important for a portfolio to have enough diversification so that a decline in one asset class or position is less onerous on the portfolio than if the portfolio was concentrated in one position the declines. For example, if a position makes up just 5% of a portfolio and it declines by 50%, the portfolio will only decline by 2.5%, provided all other positions remain the same. On the other hand, if that position makes up 50% of the portfolio (only two positions in the portfolio), then a 50% decline in that position will result in a 25% decline in the overall portfolio. How do you know if you are well diversified? If on a monthly basis, all of your positions move in the same direction (either all go up or all go down) and it occurs frequently, you are probably not well diversified. That means that not only do you need to have an adequate number of positions in your portfolio, but you should also have positions that exhibit different characteristics.
- Rebalancing - setting and forgetting is a dangerous approach to investing. Over time, some positions will outperform others, resulting in weights to each position that are quite different than the original allocation. In these cases, and as frequently as monthly, a portfolio should be monitored so that positions that have deviated considerably from their initial allocations can be rebalanced. That means selling those positions that have a higher allocation than the original allocation and reinvesting in the positions that are below their original allocation. For example let's say you have two positions and your original asset allocation strategy is to have 50% in A and 50% in B. After a few quarters, A has outperformed B such that A now makes up 60% of your portfolio and B makes up only 40%. In this case, you would sell 10% of A and invest it in B so your ending balance is back to the original 50/50.
There are quite a few other concepts involved in managing portfolios - too many to list here - but I hope this gives you some insight on where you could start the process.
Good luck and please reach out if you need any clarification.
Arturo Neto, CFA
Let me first preface my answer by saying that a fiduciary is better not only for planning and investing assets, but for any type of investment advice. As others have stated in their answers, fiduciaries have to hold your best interest above their own while a broker has no such requirement. That doesn't mean a broker can't provide you with excellent advice, but you should be aware that they can charge higher fees so long as a recommended investment is suitable. What does suitable mean? Let's say you're going into a car dealership looking to buy a car. You tell the salesman that you need a car that will get you from A to B. The salesman says, I have just the car for you, and walks you over to a Ferrari with a price tag of $250,000. It doesn't matter that you're 90 years old and all of your investable assets amount to less than the price of the car - The car he/she is recommending gets you from A to B so it would be considered suitable. Is it in your best interest? Absolutely not. But a broker isn't required to show you the more affordable Honda Accord in the other parking lot. I'm obviously exaggerating but I hope you get the point. When looking for investment advice, make sure the person you are getting advice from is looking out for your best interest, not theirs. One way to tell is by the depth of information they try to obtain before making a recommendation of any kind. If they are truly trying to understand your situation in detail, there is a good chance they are trying to provide you with the best advice. A broker can do this too, but the only way you can be assured of getting advice that is in your best interest is by making sure the person giving the advice is adhering to the fiduciary standard. Hope this helps.
Hi there. The short answer is yes there is a place for junk bonds in your portfolio and I think you already touched on how to use them: in a small allocation. How much of an allocation really depends on the rest of your portfolio. Before I go on, let me quickly define the descriptions for bonds rated below investment grade. Some definitions will include all bonds rated below investment grade as junk bonds, while others split this category into two: high yield bonds for those rated BB+ to B or so, and junk bonds for those rated below B. It sounds like your allocation is in High Yield and not Junk Bonds by those definitions.
Now to answer your question on allocation. You should consider that within the fixed income universe, High Yield Bonds can sometimes and often be more correlated with equities than other fixed income categories. Some investors use them as a proxy for equity and you might consider them high dividend payers even though they pay coupons not dividends. If your portfolio is heavily weighted towards fixed income and the high yield component is a small percentage of that, you should be OK. However, if you already have a lot of equity, consider the high yield position an additional equity exposure.
Hope that helps and if you want me to take a look at your portfolio and give you my two cents, please reach out.
Hi, thanks for your question. You obviously have had a bad experience with investments in the past so your reluctance to be positioned in anything but cash is understandable. However, while investing has its risks, cash also has a risk that we often forget about: the risk of losing purchasing power as inflation makes that cash worth less tomorrow than it was worth today. I don't know what your experience entailed and why it turned out to be a bad one. Perhaps you were too concentrated in one or two bonds whose companies went bankrupt? Or even if you were well diversified, maybe bond prices took a hit during your holding period? If the former, regrettably, diversification would have helped and in fact, I only recommend individual bonds to clients that understand them in detail. If its the latter, perhaps your time horizon was too short or you picked a bond fund that was riskier than others. I don't know so it is difficult to answer your question within the context of your stated risk aversion.
That being said, if your time horizon is long enough (very subjective), you could invest not in one bond fund, but several, with the idea of diversifying across different bond types with different maturities. In a rising rate environment, bond prices usually decline so you would prefer to have shorter maturity bonds. (Shorter maturity bonds generally are less sensitive to interest rates) But that doesn't mean you shouldn't also have SOME exposure to longer dated bonds. After all, the short maturity bonds don't pay much. I would suggest a variety of bond funds with a heavy tilt towards government bonds and short maturities - but with some exposure to corporate bond fund and higher maturities.
As for other types of investments for a risk-averse profile. Again, it depends on the reasons why you are risk-averse and how you are defining risk. There is risk of loss and then there is volatility. For example, you can potentially invest in a fund that is very volatile but is unlikely to go to zero because it is inherently made up of hundreds of individual positons. Is volatility a risk you are willing to take? It requires you to hold when prices decline - not panic and sell at the low. So how do you define your risk aversion?
Hope this helps and let me know if you have any follow up questions.
Just found this article: http://www.wealthmanagement.com/client-relations/counseling-risk-averse-client
Hi there. Congratulations on deciding to set up a 529 for your daughter's education. We did the same for our daughter who is now 3 years old.
Since you are looking at at timeframe of 16-20 years, I suggest investing the 529 plan towards the growth end of the spectrum. I would suggest using the passive option and manually adjusting it to a more conservative portfolio as your daughter approaches her first year of college. The active portfolios, in my opinion, tend to do a poor job of making those adjustments and do not offer good returns as they shift to a more conservative profile. Stay aggressive for more than the 4 years shown on the 0-4 age portfolio. You have plenty of time and the portfolio should generate higher LONG-Term returns albeit with much higher short-term volatility. At this stage, you can afford the volatility, and in fact, since you will be adding approximately $360/year, volatility may even be good at this early stage. As your daughter gets older you can slowly adjust the portfolio to be more conservative, with the idea of being in full wealth preservation mode once she is in college. Keep in mind, however, that educational costs have been climbing at rates that exceed that of inflation. Whether the 529 plan covers the expenses you intend on paying with it depends on the investment returns and the additional contributions you make over the years. At an expected return of 8% annually with $360 contribution every year, you should end up with over $16K. See below. However, the returns may decline as she gets older as you reposition the portfolio more conservatively. Hope this helps.
|Age||Balance||Contribution||Return on Opening Balance||Return on Contribution||Ending Balance|