When it comes your investments, consider having at least a portion of them in an H2H service model. I know, some of you are saying, what’s H2H? It’s a term used to describe how a business serves clients. In other words, they help clients human to human — versus computer to human. Just the fact that there is a term for this gives you a sense of how fast computers have become the frontline service provider for many service companies.
If you go into most Panera Bread stores, you now have the option to order via a computer terminal versus talking to a person. Amazon and Google are both totally built on the C2H (Computer to Human) service model. You can talk to a person but it is not easy to initiate a conversation; you only really do it when something goes wrong.
What does this have to do with investing?
Most investors pay a commission to a financial services company. These companies provide the investor with access to:
- Investments – stocks, bonds mutual funds, etc, reporting — confirmations, monthly statements, 1099’s, etc.
- Infrastructure – A way to enter orders and sell and buy investments
- Accounts to invest in – IRA, Trust, brokerage, etc.
- In some cases the guidance to invest.
As service companies, they provide investors with different ways to access and utilize their services based on the type of clients the company wants to attract, service, and help with their investments. As an example, Amazon is very different than Walmart, even though they have some similarities. The same is true with investment firms. Fidelity is very different than Merrill Lynch. Your goal, as an investor, should be to find a service model that best meets your goals for a specific portfolio. You also might use multiple firms based on the goals you have, just like you might use Amazon, Walmart, and Target to find different products. I find it is not an or for most investors…it’s an and.
What does this mean to you, the investor?
Investing is (or at least it should be) a long-term endeavor. Because of this, you might have different investments in different service models due to goals, timeline, and objectives being different, which leads to different service models being appropriate in some cases.
Let’s bring this back to the H2H Service model. Although I agree other models might be appropriate, having at least one functioning H2H (Human to Human) model can be very beneficial over time. The H2H relationship should have the most predictable returns relative to the market. Not the best returns, the most predictable.
My suggestion is to consider having three buckets of investments. Then pick the best service model for that particular bucket.
- Have one bucket that is designed to give you, the investor, liquidity should you need it but it should be invested, not just sitting in cash. Basically, this investment portfolio should give an investor a smart place to access cash under any market condition. And again, this does not mean all cash and bonds. It just means, based on an investor’s potential liquidity needs, the investments should be in instruments that are less volatile than a portfolio with a 10 year growth objective. As an example, I have seen this type of portfolio consist of 25% Cash, 25% Fixed Income, and 50% Mega Large Cap dividend equities like Procter and Gamble, Exxon, Microsoft, etc. This bucket could easily be serviced in and by a C2H, H2H, or a combination of the two, like Fidelity. It comes down to how busy, knowledgeable, and disciplined an investor is, as to which model of service makes the most sense for this bucket.
- In the second bucket, this is probably a 401k at work, and the C2H Computer to Human service model might make more sense. The portfolio should have a long-term objective and the investor is adding new funds to it on a regular basis (which means it will need to be rebalanced regularly). The risk and key to using a C2H model with this bucket is to ensure the investor has his/her investment objectives aligned with his/her timeline, goals, and risk tolerance; plus this should be reviewed every few years. I have seen Target Funds work great for this bucket. A Target Fund is a computer allocated portfolio based on the year the investor plans to retire. As an example, there are 2025 target funds that automatically allocate the investments based on an investor retiring in 2025. A Target Fund is a quintessential Computer to Human investment service model.
- The third bucket I would define as an investor’s Core Portfolio. It could be in a tax deferred account, a taxable account, or even in a tax free account, like a ROTH IRA. This portfolio might only be 10% of an investor’s investable assets or it might be 70% — in either case, the goal of this portfolio is to have it serviced in an H2H (Human to Human) service model. This model gives the investor access to someone he/she knows, trusts, and has spent time with…talking about goals, timelines, and objectives both at a portfolio level and from a big picture perspective. It gives the investor someone he or she has built a relationship with, and a person to ask questions, get input, and collaborate about different issues and opportunities. I cannot stress the value of this relationship enough. It is different than calling an 800 number and asking questions of whoever answers the phone. Lastly, the investments in this portfolio should be more about being predictable based on what the market does. As an example, some portfolios will gain or lose about 60% of what the market does with regularity and confidence. If the S&P 500 is up 10%, in this example, the portfolio should be up 6%. If the S&P is down 10%, the portfolio should be down 6%. This is the portfolio that brings the whole plan together, gives the investor a person to collaborate with, and it’s a portfolio that he/she can confidently add to and invest in with confidence.
In summary, consider building an investment plan using both the C2H (Computer to Human) service model and an H2H (Human to Human) service model. A combination of the two can help an investor focus and control the four parts of investing that are controllable. We cannot control whether the market goes up or down. But we can control costs, risk, the quality of our investments, and taxes to some degree. Using a combination of a C2H and an H2H service model, an investor can better control these four factors with confidence.
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