Asset Management
Investment success requires the systematic and disciplined implementation of a consistent investment philosophy. Our process for helping you to build the investment portfolio that will move you most rapidly toward your financial goals includes the following:
Developing the Investment Policy Statement
The investment policy statement is the written master plan for your portfolio. It includes an explicit statement of your investment objectives, as well as the strategy that will be used to pursue those objectives. The investment policy statement will include:
- A formal description of your goals for the portfolio
- Target returns and maximum acceptable risk
- Asset allocation to be used
- Specific investment constraints (if any)
- Benchmarks to be employed
- Monitoring and reporting procedures
Asset allocation refers to the process of determining how much of your portfolio will be invested in different types of investments or market segments. Here’s a partial list of the asset classes in which we invest (see the ‘Investment Philosophy’ section for additional details):
- Cash and money market investments
- Treasury and corporate bonds (foreign and domestic)
- U.S. large company stocks
- U.S. small company stocks
- Real estate securities
- International developed market company stocks
- International emerging market stocks
Investment Selection
Once an investment policy has been adopted, including an asset allocation plan, we implement the plan through the selection of specific investment vehicles to fill each asset class. These investment vehicles will most frequently take the form of exchange traded funds (ETF), no-load mutual funds and load funds at net asset value (NAV). We use the following criteria when selecting funds:
- The fund must represent a clearly-defined market segment
- The fund must remain fully-invested at all times
- The fund must have low fees and expenses
Monitoring and Reporting
We monitor portfolios daily and generate quarterly performance reports. You will also receive regular monthly account statements from the firm holding your account (TD Waterhouse Institutional Services).
Rebalancing
Over time, different asset classes will experience different rates of return, with the result being that the portfolio will drift away from its target allocation. As needed, we rebalance the portfolio by reducing holdings of those asset classes that exceed their target allocation and increasing holdings of those classes that have fallen below their target allocation. Rebalancing, if pursued systematically, is a discipline whereby we periodically sell assets that have become relatively expensive and reallocate to assets that are relatively cheap. Or, put another way, it is a systematic way to “buy low and sell high.” In order to minimize the transaction costs and taxable gains generated in client portfolios, we employ a strategy of “passive rebalancing” whenever possible. Since dividends, interest, and capital gains distributions are paid out by fund investments throughout the year, we accumulate these distributions and reinvest them – but not into the funds that paid them; instead, these go into those funds that are below their target allocation. We do the same with any additional contributions that are made to the account. In this way, the portfolio is rebalanced without generating any taxable gains beyond those that would have been recognized anyway. The process can be reversed when dealing with portfolios that are making regular income distributions.
