Managing Asset Allocation
Our Strategies are founded in Modern Portfolio Theory. These proven asset allocation and diversification methods are where we start to design our Strategies. While it is the primary tool for managing risk, asset allocation is just the beginning point for us. Our investment philosophy incorporates subsequent breakthroughs in behavioral finance and risk management.
Where standard asset allocation can fall short
Looking in the rearview mirror to drive forward
Individuals are not institutions
Standard asset allocation requires long time horizons of a decade or more for the true benefits of diversification and reversion to the mean. While this is appropriate for institutional investors, market prices and outcomes can vary greatly over short periods. Individuals and families may not have the time to wait for markets to act like their long-term averages.
Asset allocation generally relies on low or noncorrelated asset classes whose combination results in the optimal targeted blend of risk and return. That optimization can only be achieved when correlations are stable. We understand that correlations aren’t always stable and when high correlation events occur, risk mitigation is compromised.
Three layers of risk management: innovative solutions
To address the challenges inherent in standard asset allocation, we focus on a roughly 75%/25% combination of a 3- to 5- year strategic outlook and a 6- to 18-month tactical outlook as well as overlay our Cash Indicator. This approach is designed to provide more consistent risk adjusted returns and give us the ability to manage risk in real time.