Creating Solid Investment Plans

Stephen Trefts, President

Stephen Trefts, President

In the face of economic storms, how does a trustee make wise investment decisions? There are several steps we take to create a trust lifeboat in the sea of these turbulent financial times.


The investment process begins with a thorough evaluation of the needs of the trust beneficiary. The analysis includes gathering information on outside assets and sources of income such as retirement plans, Social Security, and VA benefits. Additionally, medical needs and costs will be assessed as well as other general needs of the beneficiary. For example, this past year trust assets were used to pay for inpatient therapy at a psychiatric clinic. In another trust, we remodeled a bathroom to make it accessible to a disabled beneficiary. Sometimes needs are longer term, such as providing for future college education. Analyzing the present and future needs of a beneficiary allows us to provide for an appropriate cash reserve and to create an investment plan

Creating an Investment Plan

Once short-term and long-term needs are assessed, we work with our investment advisor to create a written investment policy statement and asset allocation model that will address the current and future financial conditions and meet the needs of the trust beneficiary. If the client does not have an investment advisor, then we select an investment advisor. Our company policy is to retain the investment advisor of the client. The investment plan would include diversification to reduce risk. The diversification factors would be:

By style (e.g. growth vs. value orientation)
By capitalization (e.g. large, mid or small size company)
By geography (e.g. international vs. U.S. holdings)
Between income and growth (e.g. fixed income vs. equities)

Many of our trusts include personal residences, commercial property, real estate contracts, collectibles, commodities and non-traditional assets. The investment plan needs to also take these types of assets into consideration as well.

Monitor Performance

Trust investment return is a function of how much risk a trustee is willing to assume. The higher the risk usually results in higher returns with high volatility in value. The converse is true that lower risk usually results in lower returns with less volatility. Therefore, we carefully document what risk we are willing to take. This is measured by technical terms such as standard deviation, beta, alpha, R-squared, bond rating standards and peer comparisons. We also utilize third party analyses such as Morningstar recommendations. We use these tools to monitor performance when we meet regularly with our investment advisors. We analyze the trust or guardianship portfolio in relation to our written objectives and if necessary, we rebalance the portfolio to align with the allocation model. The results of these efforts are seen by our beneficiaries when they receive their financial statements.

Print Date:  Spring 2009