The firm believes
asset allocation is the key component of investment portfolio design, as it has
the biggest impact on the future performance of your portfolio. For example, a
portfolio allocated 100% to stocks will have very different returns and risks
compared with a portfolio allocated 50% to stocks and 50% to bonds in various
market conditions. We recognize that each client’s needs and goals are
different, and we will work with you to arrive at an asset allocation that you
are comfortable with, based on your unique situation and tolerance for risk.
There is no right ‘formula’ to calculate what your asset allocation should be
based on your age.
With any asset allocation, an investment portfolio should be well diversified across various sectors and geographies. Not only does it help manage the risk of your portfolio, but it also gives you exposure to different areas of the bond and stock market. For example, within bonds, a diversified portfolio may include long term bonds and short term bonds. Within stocks, we would recommend a combination of domestic and international stocks, as well as companies of different sizes and industries. The general idea behind diversification is that when some investments perform poorly under certain market conditions, there are other investments in a well-rounded portfolio that may perform better. Over the long-term, a diversified portfolio should have less volatility and steadier returns than one that is not diversified.
We strongly believe that investing for the long-term is the best strategy to reaching your financial goals. Chasing short-term trends and performance or trying to “time” the market in a short period of time is speculative and could result in significant losses to investors. In periods of market volatility and downturns, it’s particularly important to maintain a long-term view. Studies have shown that average investors underperform the stock market because they are buying when stocks are high and selling when stocks are low based on short-term views and emotional reactions.
Mutual funds provide benefits of diversification and ease of investing, and in some cases, value-added active management. In exchange for providing these benefits, they charge a percentage of your investment (the expense ratio). The expense ratio charged by funds can vary greatly, and can be as low as 0.25% for an index fund or as high as 2.50% for actively managed, specialized funds. In addition, some funds may charge a load (sales commission) of up to 5% when you purchase the fund. As you can imagine, these costs can add up and easily reduce the net performance of your portfolio. With thousands of funds to choose from, there are plenty of high-quality, no-load investments with reasonable expense ratios. We are very fee sensitive in the investments that we recommend, and strongly believe that if we can keep fund expenses low, it will enhance your overall performance over the long term because you get to keep more of the profits.
The most common strategy that we recommend for clients is a blend of core and satellite investments. This strategy blends passive (or index) and active investing, where passive investments are used as the basis or “core” of a portfolio and actively‐managed investments are added as “satellite” positions. With this strategy, the portfolio core holdings are indexed to potentially more efficient asset classes (where active managers don’t have as much value-added) while the “satellite” selections are generally limited to active managers that are attempting to outperform a particular category. This also helps to keep costs low as index funds have much lower expenses, so we only recommend actively managed funds when we believe the managers can justify the higher fees by providing additional value over the long term for our clients. Funds for each asset class are selected based on a number of factors including investment philosophy and strategy, historical performance against peers, cost, fund size, reputation and depth of the management team, and overlap with other funds being used.