PORTFOLIO MANAGEMENT

Our investment process is a multi-layered discipline which combines strategic asset allocation with tactical changes. This allows us to strive to balance risks and optimize your probability of successfully meeting or exceeding your financial goals.

 We believe that in order to successfully implement a total wealth plan, you need an investment process which is dynamic and adaptable. Our process:

  • Begins with your financial plan so we can identify the minimum risk required to pursue your goals
  • Continues with developing a dynamic asset allocation which integrates four main components
    • Strategic asset allocation(i) which focuses on the optimal asset allocation needed to achieve your financial goals
    • Rules-based tactical changes to manage risks or capitalize on opportunities that exist in the short term
    • Customization of the portfolio on a client by client basis
    • Investment Selection of low cost, tax efficient vehicles where appropriate.
  • Is completed with regular, systematic review process.

Strategic Allocation | Optimal Risk and Return for the Long-Run

Our strategic asset allocation decisions are built upon a belief that markets are not entirely a “random walk”. In other words, past market performance can offer some clues to future returns.

  • Modern Portfolio Theory (MPT). We begin by using a Nobel Prize-winning theory used to construct optimal investment portfolios from a variety of broad asset classes. These portfolios aim to maximize return for different levels of risk or volatility. Put another way, they are designed to minimize volatility for a necessary long-term rate of return. We then stress test the portfolios against a client’s goals to determine the best balance of risk and return. This asset allocation becomes our benchmark on which we build your portfolio.
  • Location Matters. The taxability of your assets should play a key role in investment strategy. We take into consideration the difference between taxable, tax deferred and tax free assets when making recommendations and future changes to those portfolios.

Tactical Tilts | Rules-Based Decision Making

Tactical asset allocation(ii) is defined as a series of risk-controlled modifications to the strategic allocation, based upon shorter-term opportunities and risks observed in capital markets.

Our strategic allocation directs our long-term decisions – the best balance of stocks, bonds, cash, commodities, etc. for an individual in a “Perfect World”. Because the world is rarely perfect and markets change quickly, we build upon this valuation framework by incorporating tactical rules to make adjustments when necessary. We use four rules to assist us in making these decisions:

  • Price Impact. We believe that careful analysis of historical returns reveals a strong relationship between the price paid for an asset and the subsequent returns investors can expect to earn over the next 5-10 years(iii). Because we believe that the price paid for an asset matters, our return expectations change as asset prices rise and fall. When assets are well above their long term trend lines, we will look to underweight them. Conversely, when assets are well below those trend lines, they typically offer better value and we would look to overweight them.
  • Don’t Fight Central Banks. We believe portfolio strategy should align with monetary policy. For example, if the Federal Reserve begins raising rates aggressively to prevent the economy from overheating, which could then fuel higher rates of inflation, we believe taking a more cautious investment strategy would be warranted.
  • Don’t Fight the Trend. Market momentum can be a very powerful indicator of short term direction. When an asset class rallies higher, it generally makes sense to let one’s profits run. When markets trend downward, it can pay to wait for a confirmed change in momentum before stepping in to invest at a good value. Many investors try to predict where markets are headed.   We prefer to pay attention to how they’re behaving today and invest accordingly.
  • Beware the Crowd at Extremes. Capital markets are made up of imperfect and sometimes emotional investors. The emerging field of Behavioral Finance has begun to explain why smart people can make irrational financial decisions such as selling low and buying high. When markets reach extreme valuations (either overbought or oversold), that’s often based on extreme emotion, rather than fundamentals. In these times, we prefer to invest with a contrarian bias to help buy low and sell high.

Customized Alternatives | One Client at a Time

No two clients are alike. While often times our model portfolios serve the needs of our clients’ plans and goals, there are cases when customization is appropriate.

  • Tax Management. Sometimes capital gains taxes associated with repositioning a portfolio outweigh the need to make a shift to our preferred investment. When this is the case, we try to work around those positions to still build the appropriate portfolio without incurring unnecessary taxes.
  • Concentrated Positions. Many of our clients have a large exposure to their company stock through options, Employee Stock Purchase Plans or Restricted Stock Units. We help those clients design an appropriate sales or hedging strategy to take emotion out of the process and reduce risk while still allowing for future potential appreciation.
  • Specialty Investments. For higher-net-worth investors, we may recommend alternative investments outside of our core managed portfolios from time to time.  Some of these instruments can be used to potentially enhance diversification with returns which are not normally correlated to traditional stock or bond investments.  Alternatively, they can be used to implement a specific hypothesis, if we believe an individual asset class or capital market offers unique value.  Because many of these assets have more complicated fees, liquidity provisions and investments, we take the time to explain the risks and rewards of each recommended investment and how it fits with your investment portfolio.

Investment Selection | Costs and Taxes Matter

We agree with legendary investor and Vanguard founder, John Bogle – over time expenses paid for investments matter…a lot.

We go to great lengths to choose low-cost, tax-advantaged vehicles as the core of your portfolio. Because costs are something we can directly control, we do rigorous due diligence on each investment to understand its net cost and weigh that against its potential benefit.

We also strive for tax efficiency wherever possible. We review the tax impact of changes to the portfolio across all clients before making changes. Tax loss harvesting – selling a security at a loss to immediately buy a similar security – helps offset realized gains on other portfolio holdings.

Ongoing Review | Proactive Client Service

We communicate regularly with you and your other trusted advisors. Clients have easy access to monthly account statements and personalized quarterly performance and their asset allocation. They can see how their portfolio is performing now and how it’s behaved in the past relative to stated guidelines and benchmarks. Annually, we review investment performance carefully so we can determine the continued likelihood for achieving investment objectives, evaluate strategy, and make additional recommendations.

Dynamic portfolio management, comprehensive wealth planning, and a regimented review process help to ensure all your financial affairs are current, organized and aligned with your vision for your life and your legacy.

Preview Our Stress-Testing Tool

(i)Asset allocation does not ensure a profit or protect against a loss.

(ii)Tactical allocation may involve more frequent buying and selling of assets and will tend to generate higher transaction cost.  Investors should consider the tax consequences of moving positions more frequently.

(iii)Source: Ned Davis Research

Past performance is no guarantee of future results. No strategy assures success or protects against loss.

This information is not intended to substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.