As our client, you receive an individually designed asset allocation plan to help you achieve your financial goals and meet your financial needs.

Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). Decisions made at this level are the most critical in determining how well behaved your portfolio returns will be.

There is an optimum allocation between stocks and bonds for a given withdrawal rate, and we customize this allocation for each client based on their cash flow needs.

Below the basic appreciation-stability allocation, we diversify across six asset classes to reduce risk and increase your long-term return. We develop another a customized asset allocation across the asset classes of Short Money, U.S. Bonds, Foreign Bonds, U.S. Stocks, Foreign Stocks, and Resource Stocks.

Short Money, U.S. Bonds, and Foreign Bonds together are our Stability allocation. U.S. Stocks, Foreign Stocks, and Resource Stocks together are our Appreciation allocation.

Stability

The stable asset classes are like the iron rods that support a sailing ship. They don’t make the ship go faster, but they do keep it from capsizing in a storm.

Investors in or approaching retirement should have at least five to seven years of their safe spending rate allocated to stability. Replenishing this allocation to stability when stocks are appreciating helps secure future years of spending.

The asset classes in Stability are

  1. Short Money, fixed-income investments with a maturity date of two years or less;
  2. U.S. Bonds, which generally pay a higher interest rate the longer their duration and the worse their credit quality but drop in value when interest rates rise;
  3. Foreign Bonds, which can balance domestic currency values and interest rates with what’s happening in the rest of the world. Like U.S. bonds, foreign bonds are categorized by quality and duration.

Appreciation

We divide appreciation into U.S. stocks, Foreign stocks, and Resource Stocks.

In the U.S. Stocks asset class, most investors have primarily U.S. large-cap stocks that mimic the S&P 500, but we recommend having more diversification than that.

On average, small cap outperforms large cap, and value outperforms growth. That being said, a well-balanced portfolio should include a broad spectrum of stocks, including a generous helping of growth-oriented stocks.

Diversification abroad can both boost returns and decrease volatility and we have found that overweighting specific countries can be advantageous too. We use the Heritage Foundation’s ratings to select countries that combine the greatest economic freedom with large investable markets. We call this strategy Freedom Investing, and you can read about its performance here.

Finally, Resource Stocks include companies that own and produce an underlying natural resource. These include oil, natural gas, precious and base metals, and resources like real estate, diamonds, coal, lumber and even water. We suggest diversifying resource stocks by resource type, geographic location of a company’s reserves, and company size.

Investors are continually looking for the safe investment. But inflation, sovereign debt, globalization, and diminishing U.S. economic freedom make a safe investment impossible to find. Thus, we advise a diversified portfolio that overweights certain subcategories.

Implementation

We recommend an initial asset allocation for the assets under our management and then revisit this recommendation as your goals and needs change.

We also offer asset allocation recommendations for 401(k) plans not under our management as well as savings advice for our client’s accounts annually, if desired. When applicable, we provide expertise in employee stock option purchases and divestiture.

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