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Portfolio Development

Once your objectives have been establised in your financial plan its time to position your assets to achieve those goals. Planning based investment decisions help to determine what level of projected investment return is necessary to allow you to meet your lifestyle goals, which can help lead you to the right mix of stocks, bonds and cash. It is also important to evaluate the impact of portfolio risk associated with that mix. Expected return and acceptable risk must be viewed simultaneously. We spend considerable time with clients ensuring they understand the risk associated with the returns we are trying to achieve in developing their portfolio. Effectively managing risk and returns requires both the appropriate asset allocation and acheiving diversification.

Asset Allocation

Asset allocation establishes the framework of your portfolio and sets forth a plan of specifically identifying which asset classes to invest in based on your risk tolerance and return objectives. Setting these targets appropriately is a critical fist step in portfolio construction. Too much in bonds or cash will ensure lower volatility than stocks, but may not produce enough returns to meet return objectives or keep ahead of inflation. Conversely, too heavy a weighting in stocks can produce higher returns over time, but can also be subject to large swings in value over shorter periods. Proper asset allocation has the potential to increase investment results and lower overall portfolio volatility. There are two primary asset allocation strategies:

Strategic asset allocation calls for setting target allocations and then periodically rebalancing the portfolio back to those targets as investment returns skew the original asset allocation percentages. 

Tactical asset allocation allows for a range of percentages in each asset class (such as stocks = 40-50%).  These are minimum and maximum acceptable percentages that permit the investment advisor to take advantage of market conditions within these parameters. 

We feel over the long run, a strategic asset allocation strategy can be relatively rigid. It also has the potential to create greater tax liabilities when investments are rebalanced at fixed intervals. Therefore, we utilize a tactical approach that gives us the flexibility to occasionally engage in tactical deviations from the mix to capitalize on unusual or exceptional investment opportunities. We don't try to time the market but rather make tactical rebalances when global economic conditions are signaling times of trouble or prosperity. 


Asset allocation lays the foundation for how a portfolio is to be structured. Diversification involves spreading your assets around to various investment types. The goal is to construct a portfolio that has exposure to many areas, some of which perform independently of others. Diversification works best when asset classes have low correlations with one another - when some zig, the others zag. When you put assets that have low correlations together in an portfolio, you may be able to get more return while taking on the same level of risk, or the same return with less risk. We look for assets whose returns haven't historically moved in the same direction, and ideally, assets whose returns move in opposite directions. This way, even if a portion of your portfolio is declining, the rest of the portfolio is hopefully growing. Thus you can potentially offset the impact of poor market performance on your overall portfolio.