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principlefaq

 

Frequently Asked Questions

At Coastwise we believe prudent investing starts with solid education. While no one can be expected to know as much as the professionals in whom they entrust certain aspects of their lives - be it law, medicine, tax or otherwise - we find it beneficial that prospective and existing clients have a base line of knowledge about the business and investment philosophies employed here at Coastwise. We have assembled some of the more frequently asked questions as a foundation to help you to gain an understanding of what you can expect as a valued client of Coastwise.

 

Q: Why should I work with a Financial Advisor? Why shouldn’t I just manage my own money?

Q: What are the advantages of working with an independent firm like Coastwise? What is your competitive edge?

Q: I already have a money manager – why should I consider Coastwise?

Q: What are the benefits of a separate account platform?

Q: Where is my money held and how can I be sure my funds are safe?

Q: Coastwise is well known for its options expertise – how can I find out more about how options might benefit my investment program?

Q: What are the various ways you could add value to my investment program?

Q: How do you define and mitigate risk?

Q: What is the range of securities you can purchase on my behalf?

Q: I am thinking about buying commodities like gold directly – are there any advantages in owning these through my Coastwise Separate Account?

Q: I have heard options can be used to mitigate tail risk. Can you do this for me?

Q: I heard you will often invest in dividend paying companies. Why is this? What if I don’t need the income?

Q: Do you only invest in dividend paying stocks when it comes to equities?

Q: What about international investing?

Q: I understand you have an approach which may generate material amounts of income for me – can you explain this more?

Q: Do you try to time the markets?

Q: I heard you focus on fundamental analysis. Can you explain what this entails?

Q: Do you use technical analysis?

Q: What types and frequency of communication can I expect?

Q: Will my portfolio be exactly like everyone else’s?

Q: If I need to make a cash withdrawal can you accommodate this?

 

 

 

 

Q: Why should I work with a Financial Advisor? Why shouldn’t I just manage my own money?

A: There are several reasons why sophisticated and novice investors turn to a professional money manager.   These include: 1) Time. Many clients are busy professionals or retired individuals who would rather not be dedicating the necessary time to constantly review economic data, fundamental stock information, financial statistics and the like. We do this full time so you can focus on and enjoy other aspects of life. 2) Portfolio complexity. Over time your portfolio may have grown too complicated to manage or it may need some enhancing. In either case, a professional can relieve you of the stress and burden of managing important financial assets. 3) Tools and techniques you may not fully understand. The world of finance has become increasingly complex and it is difficult to keep up on the latest products unless you dedicate your business life to studying and understanding them. Powerful and effective tools like the use of options take time to understand, implement, and monitor. 4) Unique opportunities. The world of investment opportunities is large and growing. We can often find investing opportunities where others are not looking such as in international markets, alternative asset classes, or via the use of options to achieve specific objectives.   5) Perspective and accountability. Some clients simply need an objective professional to help them take a step back to gain understanding on the big picture and keep them on track during the inevitable challenging periods in the market. Even though most people think they can match the market by simply investing in a broad based market index, it is not just what you invest in but when that can make a big difference. The sad truth is: various studies indicate the average investor has experienced about a 3% return over the last 40 years versus around 9% for the overall market. This huge underperformance is largely attributed to investors buying high and selling low, a costly mistake that can keep you from reaching your long-term goals. Like a personal trainer, we help to make you accountable and disciplined in good times and bad, keeping you on your investment program for the long haul.

 

Q: What are the advantages of working with an independent firm like Coastwise? What is your competitive edge?

A: There are myriad reasons for choosing an independent Investment Advisor over a wire house (large brokerage firm). These include: 1) Focus. As with people, companies tend to be good at that on which they are focused. At Coastwise, we are laser focused on managing client portfolios. We are not involved in a dozen different business lines that can cause a lack of focus and thus performance. Simply put, focus tends to lead to excellence. 2) Fully customized portfolios. At Coastwise, we offer advice that fits and is unique to you. Unlike most firms that offer only cookie-cutter portfolios, at Coastwise no two accounts are the same. Industry surveys suggest that less than 10% of separately managed accounts in existence are truly customized. 3) The use of options where appropriate. Very few Investment Advisors have the expertise or take the time to implement option strategies for their clients. At Coastwise, you can get hedge fund-like portfolio sophistication at competitive rates.   4) Selectivity. As a high end boutique firm, we work with fewer clients and are careful in choosing the right clients for us, again allowing for superior customer service. Our business model is to be the Four Seasons, not a mass scale motel chain. 5) There are no conflicts of interest that often exist at other firms. Large brokerage firms and banks, so called ‘financial supermarkets’, often have multiple product lines which can create inherent conflicts of interest. One of many examples was the discovery that many brokerage firms were recommending stocks for their clients not because of the merits of the security but to win much sought after investment banking business. Brokerage firms paid hundreds of millions of dollars in fines when this came to light. At Coastwise we have one job, and that is managing money for you, plain and simple. 6) Coastwise is a fiduciary. This is one of the most important advantages. It means that we must put our clients’ interests first whereas most brokerage firms must only recommend what is ‘suitable’ for their customers. For example, most brokerage firms have no obligation to tell you that a less expensive version of an investment is available. They are allowed to put you in their own firm’s S&P 500 fund even if a lower cost ETF or mutual fund exists for you. Oftentimes, brokerage firms employ sales representatives (even though they call them Financial Advisors) who focus on selling their company’s own products; at Coastwise, we are true Advisors.   7) Greater continuity. It seems as though every couple years, a new scandal breaks out, brokerage firms merge (or simply disappear), thousands of employees lose their jobs, and big fines are paid (this seemingly never ending litigation is not only costly to large firms in legal fees and fines, but is a major source of distraction). It is not unusual for clients at large brokerage firms to have a new Financial Advisor assigned to them every year or two. Imagine having a new primary care doctor every other year! At independent firms such as Coastwise, turnover tends to be lower and thus we can become and stay familiar with our clients and their needs. 8) Direct access to money manager. At large brokerage firms, your so-called advisor may actually be just a sales person. The person managing your money may be many layers and thousands of miles removed. At Coastwise, your Financial Advisor, the one actually monitoring your account on a regular basis, is directly available to you. 9) Proprietary Products. Coastwise is not beholden to in-house products that may or may not be in the client’s interests. Rather, the entire universe of investment opportunities is open to us and our clients. 10) Private Company. Coastwise is not bound to outside shareholders, quarterly profit reports or Wall Street analysts with a time horizon of months. For better or for worse, senior management at publicly traded companies often make decisions and take action based on what will enhance their short-term stock price. They are under obligation to millions of shareholders. At Coastwise, we are responsible only for our select number of clients. We have the luxury of making decisions based on the long-term interests of our clients, not the short-term whims of shareholders. This reality ensures an aligning of interests between Coastwise and our clients. 11) Mind set. While difficult to quantify, one of our greatest strengths at Coastwise is our mental makeup. We strive to act in a way all great investors do: with utter rationality. Part time investors often let emotions, rather than facts, drive their decisions. This flawed approach can lead to costly mistakes. At Coastwise we take a very disciplined approach, removing emotions from the equation and focusing on objective information.

 

Q: I already have a money manager – why should I consider Coastwise?

A: Coastwise can offer a unique skill set of non-correlating styles as well as assets. Further, Coastwise is one of just a handful of Investment Advisors which has deep skills and experience in using options in a variety of ways to enhance returns and mitigate risk. Even if you decide to keep some of your funds with your existing money manager, you may want to consider diversifying your line up of money managers. Once folks get to know us and what we offer, in many cases they consider moving some or all of their funds. So the downside in meeting with us is only about an hour of your time.

 

Q: What are the benefits of a separate account platform?

A: Some of the many benefits of holding your investments in a separate account include: 1) Customization. Your account can be managed to your unique circumstances. 2) Flexibility. Many products are restricted as to the securities they can purchase; they are charged with staying in a particular ‘style box’, for example small cap growth. Thus, if their investment style is out of favor, their performance suffers even if the portfolio managers see there are compelling opportunities elsewhere. No such restrictions exist with a separate account. Your Advisor is free to invest where the profitable opportunities reside. Further, the manager of a separate account can be very nimble to take advantage of trading opportunities the natural volatility of markets offers. It is exceedingly difficult for the manager of a $30B fund to get in and out of any meaningful position without adversely impacting the price of a given stock. As the saying goes, it is very difficult to turn a tanker around. A separate account is a very nimble, flexible investment structure. 3) Security and peace of mind. With a Coastwise Separate Account, you have the knowledge and confidence that all funds are custodied at an independent, third party. All funds go directly into and out of your account; Coastwise never takes possession of your funds. Further, all account statements, trade verifications, and the like are sent directly to you from Schwab Institutional. Finally, you have 24 hours a day, 7 days a week access to your account which gives you the ability to check positions, account balances and any other account related information at any point in time. Compare this with common structures such as hedge funds for which your sole source of information is often the same entity managing your money. It is common knowledge that separating the advisory/trading function from the custody (where the account actually resides) and reporting functions offers the highest level of client security. 4) Transparency. Unlike pooled structures such as hedge funds where you typically don’t have access to real time portfolio data, with your own separate account you know exactly what your portfolio holds at any point in time. Hedge funds are rarely required to inform you of positions at all, so you ultimately don’t know – let alone control – the risks you are taking. 5) Total Control. With pooled structures you are subject to the decisions the fund manager makes, a person you typically have never met and who has no idea as to your specific financial circumstances, needs, etc. For example, it is common for some funds to distribute capital gains (a taxable event) towards the end of each year. If you were to buy the fund prior to this distribution, you would be hit with a tax bill even if you did not participate in the gains during the year. With your own separate account, you can work with your investment professional to optimize your personal tax situation. You control what securities you buy and sell, and when, and can even exclude a particular stock or sector for which you have a philosophical disagreement (e.g. tobacco companies).   6) Tax sensitivity. Since you own all of your investments directly, you can work with your Advisor to optimize your tax situation each year.

 

Q: Where is my money held and how can I be sure my funds are safe?

A: Most client accounts are held at Schwab Institutional which is the largest firm in the country working with independent investment advisors. Schwab custodies client funds and executes (clears) all trades. Coastwise never takes possession of your funds. You deposit funds directly into your account, and receive all account statements, trade confirmations, and end of year tax documents directly from Schwab. You have 24 hours a day, 7 days a week access to your account over the internet, via mobile app, by phone, or in person in Schwab’s branch offices.

 

Q: Coastwise is well known for its options expertise – how can I find out more about how options might benefit my investment program?

A: At Coastwise we have extensive experience in and knowledge of using options in conservative ways to achieve myriad objectives including generating steady income, reducing portfolio volatility, and providing downside protection. While options can be used in aggressive ways (and for those who qualify Coastwise can implement such a program), in general Coastwise uses options as an overlay on a portfolio of high quality securities to reduce risk, generate income, and in general make the portfolio more conservative.   Options can also be used to mitigate broad market or concentrated position risk. See your Financial Advisor to determine if options can be a valuable tool in your portfolio. To receive additional information about how Coastwise uses options, CLICK HERE.

 

Q: What are the various ways you could add value to my investment program?

A: There are several ways working with a professional money manager, especially a Coastwise Financial Advisor, can help to add value to your investment program. The first way relates to goal setting. As with physical fitness or just about anything in life, you need a plan – a road map on where you are heading. Adhering to this process alone can help you avoid costly mistakes. Proper asset allocation is another way your Advisor can add value. Effectively aligning your investments with your time horizon and objectives is one of the most important things you can do as an investor. For example, having funds you do not need for years sitting in cash can be costly in terms of losing money after inflation and taxes. Similarly, often people will seek exposure to long-term investments like stocks even though their time horizon may be only a year or two. Your Coastwise Financial Advisor will help you to avoid these costly mistakes. Other critical and costly investing errors your Advisor can help avoid include things like owning too much of any one individual stock (being overly concentrated). In addition, often investors sell at just the wrong time in a panic; your Coastwise Financial Advisor will help to give you rational, objective information about the likelihood that your investments recover over the expected holding time frame of your account – so that you don’t make emotion-based decisions which counter your long-term financial interests. In terms of valuation, individual investors often overpay for stocks as they are fixated on price and not value. Our fundamental value approach will help you avoid this potentially costly error if the P/E ratio of a stock you would otherwise choose to own declines, as often happens to high flying securities in challenging times. Security selection is another area of value-add. We are constantly scanning the universe of investment opportunities and ensuring we own the very best securities trading at reasonable valuation. As discussed above, for qualified investors we can employ a sophisticated options strategy that can add value to your investment program. In summary, Coastwise employs a well-defined, disciplined investment approach that will take the stress off of you when it comes to protecting and growing your hard earned money.

 

Q: How do you define and mitigate risk?

A: We have written extensively about risk identification and mitigation as it is a key aspect of portfolio management within a prudent investing program. Your biggest mistakes often outweigh your biggest wins, thus eliminating mistakes via disciplined risk controls is a key aspect of superior investment performance. Some ways we manage, monitor and mitigate risk at Coastwise include: 1) making sure your investments meet your time horizon, 2) ensuring your portfolio is properly diversified, 3) verifying your holdings are of the highest quality, 4) validating that positions you hold are not excessively valued, and 5) where appropriate using options to further mitigate risk. While most investors define risk as market volatility, in reality near-term market movement is not relevant to a long term investment strategy, and at best a source of opportunity to profit from natural short-term market swings. For more information about risk, CLICK HERE or email This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Q: What is the range of securities you can purchase on my behalf?

A: At Coastwise we are not confined to any in house products, thus the entire universe of publicly traded securities is available for investments. This includes but is not limited to common stocks, preferred stocks, ADRs (American Depository Receipts - foreign stocks trading on U.S. markets), ETFs (Exchange Traded Funds), mutual funds, closed end funds, fixed income, options, REITs (including private REITs), commodities, and other publicly traded securities.

 

Q: I am thinking about buying commodities like gold directly – are there any advantages in owning these through my Coastwise Separate Account?

A: There are several advantages in gaining exposure to commodities and other alternative asset classes through publicly traded securities held in your separate account versus owning these assets directly. These advantages include: 1) Cost. It can be very expensive (not to mention risky) to hold commodities such as gold directly. Owning a publicly traded security that rises and falls in price along with the price of the underlying asset eliminates costs and risks associated with storage, insurance, etc. Also, transaction costs (commissions, spreads) can be exceedingly high when trying to buy and sell commodities directly, at times exceeding 5% or more versus a typical stock trade commission being in the range of 0.1% (one tenth of one percent, or 50 times less than commissions associated with selling real property for example). These “hidden” costs alone – steep commissions to sell for example – can eat away at any profits. 2) Liquidity. With exposure to commodities via stocks, you can sell with a click of the mouse. If you own certain commodities via structures like oil rigs, jewelry, real estate, etc. it can take you long periods of time to sell the asset. This can lead to lost profits if prices are falling just as you are attempting to sell.   3) Ability to hedge. While many real estate owners are learning the term “short sale” the hard way, in reality you cannot directly profit from shorting (selling high and buying low) real property or most other asset classes. Such a market for shorting simply doesn’t exist. Similarly, it is difficult to impossible to hedge most other assets classes. When gaining exposure to gold via ETFs traded on U.S. stock exchanges, for example, you can short the ETF if you feel the price of gold is due for a decline, or hedge your position through selling calls, buying puts, or both. Consult your Financial Advisor for more details.

 

Q: I have heard options can be used to mitigate tail risk. Can you do this for me?

A: At Coastwise we can use our expertise in options to protect against large market movements known as ‘tail risk’. This is akin to buying insurance on portfolio. For those who qualify, the use of options can provide flexible, precise downside protection in a manner that is far easier to understand than implemented by some hedge funds or other complex and costly vehicles. The same techniques can be applied to those who have large, concentrated positions of a given stock. Speak to your Coastwise Financial Advisor for more information. To learn more about how Coastwise uses options to mitigate risk, CLICK HERE or email This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Q: I heard you will often invest in dividend paying companies. Why is this? What if I don’t need the income?

A: For those in the Growth, Growth & Income, and Income objective categories, well established, best of breed dividend paying companies can be a great source of income and total return potential. Investors often think strong returns are only found in some obscure, micro-cap companies ‘the other guy’ has heard of. But in reality, those companies often end up being a bust while large, profitable businesses provide superior returns over time. Just witness Warren Buffett who owns some of the largest, most recognizable companies in the world – Wal-Mart, McDonalds, Coca-Cola, American Express, and others. His ability to generate superior returns is not driven by purchasing obscure companies, but rather by buying great brand name companies at good prices. Dividend paying stocks tend to offer an added measure of stability as they are a source of steady, reliable and often growing income in all market conditions (and thus can be hedges to inflation as dividends often grow far in excess of the inflation rate). Further, when markets retreat they tend to keep their value longer because investors tend to sell other shares first and the dividend provides an inherent floor to the stock. Dividend stocks also provide a cash return on investment without having to sell your stock. The cash you receive regularly is real and yours to keep. Further, what few investors know is that since 1926 over 40% of historical stock returns have come from dividends, and dividend paying stocks tend to have a lower beta (a measure of volatility of an asset - how that asset’s price moves compared to the market) than the overall market, meaning they fall less than the market during challenging times. According to Ned Davis research, stocks with growing dividends outpaced US market from Jan 1973 to September 2011, with annualized returns of 9.21% versus 7% for S&P 500 stocks with no dividend changes, 1.74% for non-payers, and -1.02% for dividend cutters. All this occurs with lower volatility (standard deviation of monthly returns of 16.45% versus 25.92% for non-payers). Of course, the late 1990s, when growth stocks were all the rage, was truly an aberrational period in the stock market’s history. Over the long term, boring stocks tend to win. But not all dividend paying securities are the same and you need an expert to determine which companies will maintain and grow, rather than cut, their dividends. We look at variables including a history of steady (and preferably growing) dividends, a company that exhibits financial strength in their balance sheet and operating strength, companies with consistent cash flow, along with other important financial criteria. Simply put, the ability to consistently raise cash dividends is one of the most predictive factors of company’s strength and correlates highly with quality of earnings.

 

Q: Do you only invest in dividend paying stocks when it comes to equities?

A: No, the types of securities we invest in are driven by the client’s objectives for that account. For example, for an account that has an Aggressive Growth objective, smaller, non-dividend paying growth stocks could be appropriate. Fast growing emerging markets may also be part of the mix for more aggressive accounts. While dividend paying stocks can be a good core part of any stock portfolio (and many high quality dividend paying companies also have strong growth rates), Coastwise seeks to achieve growth objectives with non-dividend paying securities as well.

 

Q: What about international investing?

A: At Coastwise we look the world over to find the best investment opportunities for our clients. The advent of exchange traded funds has made it even easier and more cost effective to gain direct international market exposure.

 

Q: I understand you have an approach which may generate material amounts of income for me – can you explain this more?

A: At Coastwise we have an enhanced dividend income strategy that uses conservative call options in conjunction with high quality dividend paying stocks to generate income levels that can far exceed income generated by traditional sources such as savings accounts, CDs, and even bonds. An additional benefit is that of downside hedging of positions the sale of calls can provide. The use of options is a sophisticated, time consuming, yet effective means to generate income for those who have the time and expertise to employ such a strategy. To speak to a Coastwise Financial Advisor to determine if such an investment program is right for you, CLICK HERE or email This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Q: Do you try to time the markets?

A: At Coastwise we focus our time and attention on things over which we have control, including understanding client goals and time horizons, buying best of breed securities, proper asset allocation and the like. Near-term timing of markets is not only an impossible undertaking, the attempt to do so can lead to reduced performance or getting off track on a long term investment program. While no one can predict near term market movements, savvy and nimble investors can attempt to take advantage of near-term movements through active trading which Coastwise employs where appropriate.

 

Q: I heard you focus on fundamental analysis. Can you explain what this entails?

A: While in the near term a multitude of variables can drive stock prices, in the long term it is a security’s fundamentals that matter. As such, we dedicate most of our investing time to studying fundamentals of businesses as all great value investors like Warren Buffett do. Some variables we consider are overall market as well as individual stock valuation metrics (e.g. P/E ratio, PEG ratio, etc.). Dividend levels and appropriate payout ratios are also considered as these can be strong indications of improving earnings. Coastwise looks to own the top companies in a given industry as these firms tend to be able to better weather inevitable economic storms. Various balance sheet items are also considered such as debt to capital ratios, coverage of interest, leverage, etc... Finally, financial ratings by various independent information sources such as Standard & Poor’s, Value Line, Argus, and others are considered, again with an eye on purchasing stocks of companies with the highest financial strength ratings.

 

Q: Do you use technical analysis?

A:   Technical analysis can be a valuable tool in validating entry and exit points for stocks, as well as assessing overall market valuation metrics. Charts and the like are more typically used in an attempt to predict short term market/stock movements, hence technical analysis would be considered lower on the list of important means to assess the attractiveness of a given investment over the long term.

 

Q: What types and frequency of communication can I expect?

A: At Coastwise education and client communication are very important to us. While each client brings his own unique knowledge and interest to be informed to the relationship, we believe offering a base of understanding to our clients will help to keep them on track and avoid mistakes people make (often because they are making decisions based on emotions rather than facts). As such, all Coastwise clients receive a copy of our Chief Investment Officer’s book, The Power Curve: Smart Investing Using Dividends, Options, and the Magic of Compounding. In addition, each client receives our monthly newsletter, the Coastwise Monthly Dividend Newsletter which covers a relevant investing topic (back editions are available upon request). Finally, your individual Financial Advisor is available to answer any specific questions you have regarding your account. To sign up for our newsletter, CLICK HERE.

 

Q: Will my portfolio be exactly like everyone else’s?

A: While there are commonalities among portfolios given similar objectives such as Income or Growth, each Coastwise client portfolio is unique and managed to your particulars. Variables which drive customization include account start date, account size, specific capital flow requests (money moving in or out), time horizon, specific requests and/or restrictions (e.g. don’t invest in a given company), etc. At Coastwise, rather than having a pre-set menu where you are forced to choose from column A or column B, we build a portfolio from the ground up to suit your specific ever changing needs. Yes this takes more time, but our goal is to be a high-end boutique firm, not a large chain catering to the masses.

 

Q: If I need to make a cash withdrawal can you accommodate this?

A: With your full service, fully customized Coastwise separate account, capital additions and withdrawals at any frequency and in any amounts can be accommodated.

 

 

For additional information or to set up an appointment, contact us at (858)454-6670 or This email address is being protected from spambots. You need JavaScript enabled to view it.