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Our Investment Approach

Our firm is very oriented towards modern portfolio theory and asset allocation. Asset allocation is driven by complex mathematical models and should not be confused with the much simpler concept of diversification, where money is spread among different individual securities to attempt to minimize risk. The work of Markowitz, Sharpe and Miller, who received Nobel Prizes in economics in 1990, demonstrated that combining such uncorrelated asset classes resulted in higher returns for the same risk, compared to non-diversified portfolios.

A well-diversified portfolio will not always outperform the top asset class in any given year. But trying to predict the strongest asset class is difficult and over time, asset allocation may be the most effective way for you to progress toward your long-term financial goals. A study performed in 1982 concluded that diverse asset allocation is the most significant contributing factor to overall performance, accounting for more than 90% of the variation in returns (a).

Asset Classes

Our typical portfolio, which is very diversified, will have equity holdings in U.S. large-cap growth, large-cap value, large-cap core, mid-cap, small- cap growth, small-cap value, and international. The bond side is also diversified depending on if it is a taxable account or not.

Additional Asset classes are introduced to our client portfolios based on studies by Ibbotson Associates. These studies showed that the overall risk adjusted return (“Efficient Frontier”) could be improved with the introduction of additional asset classes. These asset classes include real estate investment trusts (“REITs”), treasury inflation adjusted bonds (“TIPs), commodities (b), private equity or other alternative assets. However, certain asset categories will not be recommended for a portfolio depending on the suitability and risk profile of a particular client and if it is a taxable account or a retirement account.

Socially Responsible Investing

Socially responsible investing is when you take your beliefs and values and apply them to how you invest your money. We provide portfolios for clients want to support socially conscious companies by investing in them. We begin by following the same general approach described above using modern portfolio theory. We will then recommend socially responsible investments in select asset categories. If you are interested in considering socially responsible investing, we would be happy to meet with you to discuss the issues, risks, and potential opportunities.

(a) Study by Gary P. Brinson, Brian D. Singer and Gilbert L. Beebower, “Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal, May/June 1991.

(b) Ibbotson Associates, 225 North Michigan Avenue, Chicago, IL 60601: Investment Policy for Securitized and Direct Real Estate study by Barry Feldman, May 22, 2003; TIPS as an Asset Class study by Peng Chen and Matt Terrien, November 1999; Strategic Asset Allocation and Commodities study by Thomas Idzorik, March 27, 2006.