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We advise clients on portfolio creation, selection, management and monitoring of investments. Most of our clients choose to have us manage their investments directly. We use mutual funds, exchange traded funds (ETFs), stocks and fixed income instruments. We fervently believe that long-term success is achieved through global asset allocation and rebalancing.
Another major factor in successful investment management is the maintenance and monitoring of the portfolio. This consists of two aspects: rebalancing and ingredient monitoring. Rebalancing basically starts with creating an effective asset allocation model (determining the ideal amount to invest in various asset classes such as small cap US stocks, large cap international stocks, natural resources, real estate, etc.) and then periodically re-setting the allocation back to the model. Rebalancing is a natural “buy low, sell high” discipline, since it forces the portfolio to take profits (trim the outperforming asset classes) and reinvest (boost the lower performing classes). Rebalancing reduces risk in a portfolio. In an up market, rebalancing will reduce overall return (since you are selling portions of the high performing assets). In an oscillating market (up and down, or cyclical), rebalancing increases return and reduces risk. Rebalancing does not have to be frequent, in fact, academic studies have shown that rebalancing too frequently actually increases costs and increases risk. However, rebalancing is a prudent tool for long-term uncertainty reduction. The second aspect of monitoring is to review asset class ingredients. We use two basic types of ingredients: passively managed, or index investments, and actively managed investments. We find that different asset classes warrant different types of management: for example, in the large US market, an S&P 500 index fund is a very useful, inexpensive and efficient option. In International Real Estate, you absolutely need a manager. We continuously look at our ingredient list to have the ‘farm teams’ ready to go should a fund manager die, leave or fall from grace. In short, our strategy is to get a good recipe with the best ingredients and watch the cooking.