Modern Portfolio Theory
- Asset Allocation
- Start with a plan. Select a stock/bond allocation based on your goals and time horizon
- Utilize a broad range of asset classes to ensure diversification
- “The sum of the parts over security selection”
- Efficient Frontier
- Upside/downside optimization
- Risk adjusted return
Adhere to Risk Based Investing
- Know your risk tolerance. Be prepared.
- Understand volatility ranges to a 95% probability
- Know your portfolios risk budget
- Follow a systematic investment process
Timely and Tactical Adjustments
- Seek value from tactical decisions
- Disregard market timing
- Quarterly review for rebalances
- Sometimes the decision is NOT to rebalance
- Sometimes the decision is NOT to rebalance
Tactical and/or rebalancing allocations may involve more frequent buying and selling of assets and will tend to generate higher transaction cost. Investors should consider the tax consequences of moving positions more frequently.
Focus On Results
- Performance rarely comes from individual security selection
- Active vs passive
- There is a place for both.
- Passive investing still needs ACTIVE asset allocation!
Aim to Investment Costs without Sacrificing Value
- Utilize top quartile money managers
- Seek Alpha over benchmark
- Index investing with a tactical managed overlay
- Use strategic benchmarks to monitor results