Prior to starting the portfolio design & construction phase, we must understand our client’s complete situation. The first step in the portfolio management process is to construct a policy statement. We utilize the data provided by clients and a risk profile questionnaire to establish the investment policy statement (IPS).

It is imperative to utilize all available tax-deferred accounts. We start with a top-down approach to determine correct type of accounts for taxable, tax-deferred or tax-free. Only then do we drill down and determine the most beneficial use of specific accounts, taking into account cash flow, contributions, maximum allowable limits. For draw-downs, the process continues as we determine both the best source account and the correct flow.

The underlying philosophies are passive investment strategy vs active in an attempt to time the markets. Market timers have to be “right” an extremely high proportion of the time in order for their strategies to work over the long run.  Furthermore, with transaction costs, taxation, incorrect timing, and incorrect market calls, it becomes almost counterproductive.

We utilized basic modern portfolio theory (MPT) which Harry M. Markowitz developed as the basic underpinnings of asset allocation theories that are commonly accepted today. In the 1950s he demonstrated that it was possible to construct a portfolio of risky individual stocks that was safer than any of the individual stocks comprising it. He also showed that by utilizing the advantage of covariance, one could build a portfolio of securities that would provide maximum return for any given level of risk.

Deep and wide asset allocation among various asset classes in such a way as to minimize overall risk and enhance return.

Investment instruments such as index ETFs and mutual funds differ from actively managed funds in which the manager attempts to “beat” the market’s performance, a practice that often comes with higher fees and taxes. ETFs make it easy to invest in a wide array of markets, whether broad like the S&P 500, in niche sectors, or targeted to a specific goal. The instruments are generally lower cost, and provide investors a way to track specific indices, reduce overlap, and ultimately provide exposure the required asset class type, sector or space.

After the correct portfolio model has been determined, we implement the designed solution to all respective household accounts. We couple the investor’s investment policy statement (IPS) and financial market forecasts as inputs in order to implement the strategy which determines how we allocate available funds across different markets, asset classes, and securities. This involves constructing a portfolio that will minimize the investor’s risks while meeting the needs specified in the policy statement.

After implementation of correct model or strategy that aligns with our clients specific parameters, we monitor, review, and provide annual re-balance or when required. This is one of our professional strategies that include written & flexible, investment polices that keep our clients focused and on track during volatile times in the markets.

This step in the process is the monitoring of the investor’s needs and capital market conditions and, when necessary, updating the policy statement. Based upon all of this, the investment strategy is modified accordingly. A component of the monitoring process is to evaluate a portfolio’s performance and compare the relative results to the expectations and the requirements listed in the policy statement.

A carefully constructed policy statement determines the types of assets that should be included in a portfolio. The asset allocation decision, not the selection of specific stocks and bonds, determines most of the portfolio’s returns over time.

As noted, a strategy’s risk may depend on the investor’s goals and time horizon. Although there are no shortcuts or guarantees to investment success, maintaining a reasonable and disciplined approach to investing will increase the likelihood of investment success over time.