In our opinion, there are many factors that make up a successful investment portfolio. We would like to summarize a few of the key ones below.

• Asset allocation is the process of splitting assets among a variety of asset classes that are appropriate for individual clients. Unfortunately, many advisors simplify this by using very broad assets classes such as “stocks” and “bonds”. This is not sufficient. As an example, “large company growth stocks” will often perform very differently from “small cap value stocks”. Good asset allocation might have 6 to 8 or more different asset classes of stocks and 2 or 3 in bonds. Asset allocation, which is driven by complex, mathematical models, should not be confused with the much simpler concept of diversification.
• Diversification is often confused with asset allocation. For example, a person may have several mutual funds and believe they are diversified. However, if each of them invests in the same asset class, they may have limited diversification. We believe it is better if each asset class in a person’s portfolio is diversified and that each person should have at least several asset classes. Keep in mind that while diversification may help reduce volatility and risk, it does not guarantee performance.
• Time frame is the amount of time you have before you expect to need a specific pool of money. The shorter the time frame, the less risk can be undertaken. For example, money targeted to buy a new car in 6 months should be placed in a low risk vehicle.
• Risk tolerance is much more on peoples’ minds than 10 to 15 years ago. Your investments are likely to have “different pockets” of money.  For example, you might keep money used for retirement in 20 years in one “pocket” and it could have a very different risk level than money to buy a new house in 3 years. You should be clear what risk levels you are willing to take with each pocket of your money.

Note: We have not said anything thus far regarding specific investment selections. We believe that investing principles such as asset allocation are extremely important to discuss first.  After the understandings are accomplished, we will focus on your specific needs and investments.