I grew up in a sailing family, and the first thing we were taught was that the wind was both an ally and an adversary. Like investing, having the wind at your back is both a comfortable and an expeditious way to get from point A to point B. On the other hand, sometimes you encounter a headwind. This point of sail is referred to as beating into the wind, and it’s every bit as uncomfortable a journey as it sounds.

To some investors, this might be an apt description for today’s investment environment, in which equity indexes near all-time highs may seem like headwinds to investment success. This might be particularly true for investors who need to make sizable investments in, or change their asset allocations to, stocks. Maybe they need to deal with rollovers from a 401(k) or need to put the proceeds from the sale of a business to work for them. Regardless, they may be tempted to worry about the timing of their investments and, when faced with this emotional headwind, may opt to wait for a ”better time” to invest. While no one possesses a crystal ball to help make perfect choices, there may be a better way to deal with this behavioral-coaching challenge: an equity investment plan (EIP).

Unlike a dollar-cost-averaging strategy, an EIP focuses on the investor’s strategic asset allocation. Typically, an EIP involves three basic steps. First, to determine a client’s appropriate strategic asset allocation. Next, to calculate the difference between the current allocation to stocks in the client’s portfolio and the strategic asset allocation. Finally, you divide this difference into parts: an immediate investment to get things moving and a subsequent set of target equity weightings to be attained by specific dates. For example:


Investors often struggle with the timing of large investments, and their fear of regret can often result in inaction. While it is typically better in the long run to invest the full strategic allocation to stocks immediately (in view of an expected equity risk premium), investors’ concerns should not necessarily be ignored. An EIP allows advisors to disconnect their clients from the emotions of the market by absolving them from the timing of the investment decisions. Instead, advisors can help their clients focus on bringing their portfolios’ stock allocations in line with specific weightings on the specific schedule that they determined in the EIP process.

While our example uses quarterly allocations over a one-year period, the frequency and duration of an EIP can be chosen to suit each investor’s circumstances, although the overall period should not be too long (for example, two or three years could be excessive). Importantly, the dollar value of each transaction will vary as the portfolio’s value changes in response to investment returns. If the stock portion of the portfolio were to rise in value from one scheduled transaction to the next, then the dollar amount of the transaction would be less than if the stock value were to fall. In this way the EIP is adaptive to portfolio returns, unlike a dollar-cost-averaging strategy.

For investors, the timing decisions for their investments can often be an obstacle to their investment progress. Whether in bull or bear markets, for some clients it never seems to be the ”right” time to buy stocks, which is an understandable if unrealistic attempt to control the uncontrollable—accurately forecasting returns. An EIP can help separate the emotional aspect of investing in risky assets from the pragmatic. Although risk is explicit with stocks, some exposure to them is necessary for most investors to pursue the higher returns required for their long-run needs. To be successful in creating wealth for your clients, there are certainly other powerful tools at your disposal—namely, increased savings rates, diversification, and asset allocation. However, an EIP can provide advisors with the means to help clients overcome the emotional headwinds and navigate the rough seas that can derail otherwise well-thought-out financial plans.


Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.