Changing up investments for sake of change may backfire, says Bay Area wealth adviser

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Alexey Bulankov

Vice president for investment management and trust

Mechanics Bank Wealth Management

1111 Civic Drive, Suite 300, Walnut Creek, CA 94596

925-256-3052

Read more tips on and coverage of wealth management.

Alexey Bulankov is vice president for investment management and trust at Mechanics Bank Wealth Management in Walnut Creek. Bulankov answered Business Journal questions about wealth management.

What difference does the age of a client make in what you suggest to them as an investment strategy?

Conventional wisdom dictates that a portfolio should become more conservative as the investor ages, but first one must determine whether or not the investment horizon of the portfolio is properly defined by the investor’s age.

For example, the investment horizon of a portfolio that will pass to a grandchild upon the death of the investor is defined by the age of the grandchild, not by the age of the investor. Generally, the purpose of the portfolio drives the investment horizon, which drives asset allocation and risk.

We do not subscribe to the old adages, e.g., the amount of stock in the portfolio should be 100 minus the age. Instead, we tailor portfolios to reflect each individual client’s goals.

How do you help a client determine what level of risk they are comfortable with when it comes to investing their money?

How we perceive and take risks is an interesting conversation. In our line of work, we come across risk-averse investors who enjoy motorcycle racing and skydiving in their spare time, as well as day traders who routinely look both ways when crossing the street on their way to their annual physical.

Establishing the client’s risk appetite is critical in structuring the portfolio. To ensure that clients understand the relationship between risk and reward, we quantify risk by reviewing various asset allocation models and the likely volatility and long-term returns presented by each model.

Ultimately, only the client knows if he or she can sleep at night given the expected volatility of a stock weighted portfolio.

Market risk, company risk, industry risk, economic and investment risks are all relevant, but so are the risks of outliving your money and the risks of missing out on life opportunities (be it college for your children, dream career or travel) as well as the risk of family quarrels due to poorly planned finances. As risk managers, we identify and balance risks.

With faster technology, algorithms to pick stocks and instantaneous investments, are clients making more frequent moves with their money, not being content to stay with investments for the long haul? What do you tell them if you consider this approach unwise?

Advances in technology, robo advice and logarithmic trading are the industry’s natural response to increased demand for information by investors and the investor demographic. However, those advances make human interaction more and not less valuable. An adviser’s value, as always, lies in separating noise from information and focusing on the things that the investor can influence.

An effective adviser is not only an investment picker, asset allocator, cost saver and a financial planner, but also a behavioral coach. An adviser’s long-term perspective and professional skill set can be utilized to prevent costly mistakes. Recent studies show and quantify the improved results that stem from a relationship with a prudent adviser.

What mistakes do you see individual investors making in the current financial climate?

The biggest mistakes we see are, “Change for change’s sake,” and “Chas­ing the hot dot.” As investors move through their life cycle and amass more wealth, the cost of making a mistake also increases. The media does what it does best to sell news: Stirring up excitement with “breaking” malaises and products du jour.

Aiming to avoid loss or the regret of missing out, an investor may feel compelled to act on the news, get ahead of the crowd and change something if only for the sake of making the change.

Alexey Bulankov

Vice president for investment management and trust

Mechanics Bank Wealth Management

1111 Civic Drive, Suite 300, Walnut Creek, CA 94596

925-256-3052

Read more tips on and coverage of wealth management.

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