Portfolio Management



Asset allocation theory identifies three sources of return: asset allocation, security selection and timing. The asset allocation decision is shown to be by far the largest determinant of variation in returns. Therefore, we concentrate efforts on the total portfolio composition and how assets are allocated.


We believe one of the most important decisions an investor makes is determining Asset Allocation – most importantly the balance between stocks and bonds. We focus much of our attention on the Client’s Risk Profile, which includes a clear understanding of:

  • Risk Capacity – the degree of risk that can be taken from a pure financial perspective.
    (This entails an assessment of future cash flow needs.)
  • Risk Tolerance – the amount of risk a client “willing” to take. (This involves an assessment of the emotional aspects of investing.)
  • Risk Demand – the level of risk that “needs” to be taken in order to accomplish the goals set by the client.


We believe the cost to invest is critical in portfolio construction. Portfolios are constructed to represent the asset classes and markets we target at the least expensive cost.


Many of the investments held within the portfolios we manage are represented by indexes for several reasons:

  1. Indexes provide effective representation of asset classes and markets.
  2. Indexes are offered in the marketplace at very low costs.
  3. Indexes can be very tax-efficient.

We track several hundred indices and evaluate the appropriateness of each in terms of how it represents a market and how it is constructed. Tracking a particular index can impose limits on investment return. To address this, we work closely with partners such as Dimensional Fund Advisors (DFA) and Vanguard to implement our strategies in a way that allows us to truly “capture” certain risk premiums.


We pay particular attention to managing risk in portfolios. Two primary measures we review are volatility and downside risk. We measure these for individual asset classes and for the overall diversified portfolio. Decisions to add new asset classes are based on how they impact the overall portfolio’s expected return, volatility and downside risk.


We construct portfolios to minimize the impact of taxes. We consider the differences between types of accounts a client may hold: taxable, tax-deferred retirement vehicle, tax advantaged charitable trusts, grantor trusts, generation skipping trusts and foundations. Each of these accounts may have differing tax considerations. The location of assets within the different accounts, therefore, makes a significant difference in long-term wealth accumulation. In addition, we aggressively take tax losses, where appropriate, and consider the alternative minimum tax in our investment decision-making.


We construct a portfolio unique to your individual needs, rather than mold your needs to a pre-formed package. Your tolerance of risk, as well as your need for return, is conscientiously considered in our design. Ongoing management takes into account the client’s specific cash flows and taxation issues.