Investment Advice

We employ a research-based process-driven approach for our client’s investments. The foundation of our philosophy is rooted in decades of empirical data that guides our portfolio construction. Opinions, speculation, and market timing are not part of our process.

Our process is governed by key principles:

  • We put your best interests above all else.
  • All client accounts are held by a third-party custodian ensuring independent oversight of your assets.
  • Our investment management fees are based on assets under management; hence, our interests are aligned with yours.

We implement and administer client investment portfolios employing a five-step process:

  • Strategic “core” allocation
  • Investment selection
  • Asset allocation rebalancing
  • Tactical allocation adjustments
  • Portfolio review and monitoring

By combining assets that respond differently to market forces, well-diversified, and more efficient portfolios can potentially be created. A well-diversified, efficiently-constructed portfolio will be expected to generate return with lower risk. We understand that risk and long-term expected return are related. The high-risk high-potential return portions of portfolios must be balanced with low-risk investments to moderate the overall portfolio volatility. Clients must have “money when they need it” to ride out a market downturn. While our equity strategy detailed below “tilts” equity allocations toward more volatile value and small-mid cap styles, our bond strategy offsets this increase by focusing on shorter-term higher-quality bonds.

 

Our strategic “core” asset allocation models typically employ the following asset classes:

  1. US Equities
  2. Foreign Equities – Developed Markets
  3. Foreign Equities – Emerging Market Equities
  4. Real Estate Investment Trusts
  5. Bonds – High Quality Investment Grade

Investment selection is our secondary investment methodology. We suggest investment vehicles to represent each asset class utilized in our models. The main criterion for each investment is that the investment represents the designated asset class when purchased and will continue to represent the asset class over time.

Asset Class and Indexed Investments:

We primarily use what we have found to be well-structured, low cost, and tax-efficient asset class and index funds. As asset allocation (with tactical adjustments) primarily drives long-term investment performance, we believe performance of our investment selections should not create a “drag” due to high investment expenses or expose portfolios to a “mistake” if the investment manager’s security selections perform below the asset class performance.

Alternative Investments:

We may recommend an investment that is not classified as stocks, bonds, or cash contingent on an investors circumstances.  The term “alternative investments” cast a wide net across a number of investment vehicles including, but not limited to, hedge funds, business development corporations, structured products, and precious metals (among others).

Competitive fees and expenses:

We believe high investment management fees and expenses are a major reason why many firms under-perform the benchmark market indices (for example, the Standard and Poor’s 500 Index) over long time periods. We take care in identifying investment managers and account “platforms” with what we believe are competitive fees and expenses without compromising investment performance.

Over time, stocks will be overvalued, fairly valued, or undervalued relative to risk-free investments and long-term median market measures. At times of stock market overvaluation, underweighting stock holdings versus the long-term target percentage of the portfolio may reduce portfolio downside losses. Undervalued stock markets may provide opportunity for incremental gains by overweighting stocks. Our tactical approach focuses on longer market cycles and the principle that markets and the economy tends to “revert to the mean.”

Tactical adjustments involve overweighting and underweighting of core strategic positions; they do not suggest either going “all-in” or completely exiting positions. We determine with each client the willingness to overweight/underweight based on a “normalized earning market valuation model” and apply the tactical equity vs. bond asset allocations to the client’s portfolio over time (with each client’s approval for the trading actions required). Our clients approve each tactical allocation change before taking action.

We have all heard that the secret to successful investing is to buy low and sell high. Rebalancing simply is the process of selling a portion of the assets in an asset class that is over-represented to the model’s target percentage and buying additional holdings in an asset class that is under-represented to the target. This “sell high – buy low” practice aims to reduce portfolio volatility over time and to protect principal in market downturns.

Rebalancing may be counter-intuitive in bull markets; typically investors want to run with and often add to the “winners.” We believe the discipline too regularly rebalance improves the chance of long-term success.

On a regular basis, we review our model portfolios to determine continued appropriateness of;

  1. Strategic Asset Allocation
  2. Tactical Allocation Adjustments and
  3. Investment Selections

Using our on-going research and evaluations against our specified criteria, we modify our models accordingly.

As we review portfolios with clients in accordance with our client review schedules, we recommend clients re-allocate accounts to maintain consistency with the models. Rebalancing may be done in conjunction with our re-allocations. In taxable accounts, the tax implications of rebalancing and re-allocations are part of the discussion.

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