Model Portfolio Investing

Model Portfolio investing is based on the proven and tested principles of Asset Allocation and Diversification. This style of investing is appropriate for the majority of investors who are “passive” by nature. In this case we would define “passive” to mean “not active.”

An active investor would be one that has the time, knowledge, and experience to manage their assets on a daily and sometimes hourly basis, in an active, or aggressive manner. Our model relies on the expertise of an investment manager and his/her team to actively manage investments within their particular fund or category.

Most people are best suited toward passive investing as it allows them to focus on controllable things such as financial habits, exposure to risk, unnecessary taxation, and increasing their income.

Investment Philosophy

Model Portfolio, or Defensive investing, utilizes Asset Allocation Models to ensure proper diversification by Asset Class (Cash, bonds, and Equities being the three primary classes), Investment style (Value, Growth, Topdown, Bottom-up, Large Cap, Bond Maturity), and Geographic Location.

The Portfolios are constructed in such a manner that each fund compliments the other. The correlation between them is also complimentary. By doing so, volatility is minimized.

Each of the three Model Portfolios progress along the “Efficient Frontier” (A collection of portfolios; each one optimal for a given amount of risk).

The “Conservative” Model would have reduced volatility as compared to the “Aggressive” Model, and the “Moderate” Model would fall in between the two.

The Aggressive Model has the highest concentration of equities (stocks). Over time, returns on stocks are typically higher, but with greater risk.

It is important to allocate individual assets into the correct model for that individual’s set of circumstances.

The process we adhere to with each client is as follows:

  1. Identify which Model would best suit the individual needs of the investor.
  2. Conduct regular review meetings with the client, ensuring the goals are still consistent with the portfolio.
  3. Regularly re-balance the portfolio to maintain the intended weightings of each fund. This is important to prevent “portfolio drift.”

For the Portfolio’s we adhere to the following processes:

    1. Construct the Portfolio to ensure it fits properly into the “Efficient Frontier.”
    2. Utilize the best funds within the portfolios based on the following criteria:
        a. Portfolio fit (Correlation).
      1. b. Minimum 7 year track record.
      1. c. Long-term track record that is at or near “best in class” or top quartile.
    1. d. Manager consistency and/or consistent application of investment style.
  1. Monitor funds to ensure they continue to meet the above criteria, and replace if necessary.