We are firm believers that asset allocation, or the lack thereof, is the driving force behind the success or failure of a portfolio. Using asset allocation as a fundamental approach to building portfolios will significantly reduce the overall risk in a portfolio without sacrificing total return. While an asset allocation strategy is no guarantee for future success, it will greatly reduce the risk associated with not having a well-diversified portfolio.
At Lane Bridgers, using asset allocation models to build and manage client portfolios, we utilize two different asset management philosophies. Due to the recent state of our economy and markets, Lane Bridgers highly supports a tactical or proactive approach to asset management through our "Advance & Protect" strategy. The Advance & Protect strategy utilizes trend recognition to help us make unemotional investment decisions and provides us with concrete buy and sell disciplines to efficiently and effectively manage your portfolio. Of course, we have the capabilities to build a more traditional portfolio that would be centered around a "buy and hold" philosophy if you should so desire.
Diversification Is the Key
Strategic asset allocation begins with diversification—making sure you don’t put all your money into one type of investment. Regardless of the percentages, a strategically diversified portfolio often includes a mix of:
- Equity Investments: domestic and global stocks and stock mutual funds;
- Fixed-Income Securities: corporate, government, municipal bonds, and bond funds;
- Alternative Investments: REITs (real estate investment trusts), oil & gas tax advantaged programs, commodities, managed futures, and senior secured-debt portfolios
- CDs and money markets.
These categories of investments are also known as asset classes.
Investments Working Together
Different asset classes react differently to the same changes in the world’s economy. The right mix is critical because it doesn't matter as much how one particular investment performs, but how all of your investments perform together. By adding non-correlated asset classes like those mentioned under the "Alternative Investments" heading above, a portion of your portfolio should not move in lockstep with the equity markets and provide you with a reduction in overall portfolio risk.
Of course, no strategy can guarantee against losses in every conceivable investment situation. When you take a strategic approach to investing, by diversifying your portfolio and taking advantage of asset allocation, you arm yourself with the tools of successful investors.
In Summary
When you work with a Lane Bridgers Schill Financial Advisor, your advisor will help you determine if your portfolio is properly diversified by carefully walking you through the following steps:
- Analyze Existing Portfolios
- Develop an Investment Policy Statement. Your Investment Policy Statement (IPS) will be based upon your individual risk tolerances and financial goals for the future. Your IPS will be the cornerstone for our recommendations when building your asset allocation model.
- Develop Asset Allocation Model
- Select Appropriate Investments
- Monitor Performance
- Annual Client Review
If you are interested in learning if your current portfolio, including your 401(k) plan, is well-diversified to minimize risk and properly allocated to help you meet your long-term planning objectives, please contact a Lane Bridgers Schill Financial Advisor for a free comprehensive portfolio analysis.
