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Investment Planning There are two issues that must be addressed when making investment decisions: what are your resources and needs, and what is the economic outlook? Most financial advisors only attempt to deal with the first issue and rarely even mention the second. Does that make sense? With the major sea changes ahead for the global economy, we believe that this approach to investing could be the single greatest risk to your financial well being. One of the greatest principles to hit the investment industry is Modern Portfolio Theory (MPT), better known as asset allocation. This classic asset allocation strategy was innovated by Harry Markowitz in the 1950s and extended by Roger Ibbotson in the 1990s. The primary goal of asset allocation is to balance risk and return by investing in different asset classes such as stocks, bonds, and cash, depending upon the clients risk tolerance and financial goals. We believe in asset allocation; however, we do not believe that MPT is the best strategy to accomplish it. There are a number of shortcomings to this theory: 1. MPT is based on an eighty year time frame - do you have eighty years of investing in your future? 2. Theories often work on paper but fail in practice. For example, would you have held your investment portfolio during the 1929-1932 depression? The tech wreck of 2000-2002? The financial crisis of 2007-2009? Or even the "Flash Crash" on May 6th, 2010? 3. Owning the same asset mix during different economic cycles is illogical because certain assets perform well in one cycle but poorly in others, e.g. long-term bonds do well in decreasing interest rate environments but perform poorly when rates are rising. 4. MPT is not forward looking. The solution? Systematically invest in long-term fundamental trends. Our research tells us that equities will likely underperform their historical averages for most of the upcoming DECADE. There will be occasional bear market rallies, some of these rallies may even be vicious, but we believe that investors will be best served by avoiding the flaws of traditional buy-and-hold equity investing. High quality municipal and corporate bonds could very well outperform most major equity indices for the foreseeable future. In addtion, we believe an increased use of alternative asset classes, i.e. private equity, real assets, absolute return strategies, etc., is vital to achieving optimal investment returns - much like the Harvard and Yale endowment funds, which have consistently achieved superior investment returns for more than 20 years. Speaking of asset allocation, when was the last time that you had an independent comprehensive portfolio review of your portfolio? If you are like most investors, you probably own stocks, bonds, and mutual funds in both taxable and tax deferred accounts (such as 401k, IRA, deferred compensation, etc.). Do you think it would be helpful if you knew what you really owned? Let's face it, with "a little here and a little there," do you really know what sectors you are invested in? How much is in equities vs. bonds? Do you have international exposure? If so, what countries are you invested in? Do you have mostly growth or value stocks? Large Cap or Small Cap? We utilize Morningstar Analytics, the industry's leading expert in providing unbiased research, to get a snapshot of your actual holdings. We'll analyze your portfolio, diagnose potential problems, and recommend ways to improve the efficiency of the overall portfolio. Please click here for a sample report of this review and click here for a sample report of the underlying stock holdings (Note: You will need Adobe Acrobat Reader to view these documents). We are very confident that this diagnostic review will exceed your expectations. (The investments highlighted in these sample reports are examples and not recommended investments).
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