Today it’s often possible to find great opportunities outside the United States that can help to add diversification to a portfolio.
A Global Approach
U.S. equity markets comprise about 30% of the world’s overall equity allocation. When we first started in this business, that number was closer to 60%.
Our approach to investing is always global and since our firm has a specialty in this area we often go much deeper than simply using an international mutual fund. We will often use individual securities and go directly to a foreign market to make investments. This ability to utilize specific individual securities instead of just a fund is a benefit that appeals to many of our clients as there are many times when it’s preferable to buy a few of the best stocks or bonds in a particular country or region rather than an entire index.
We believe in asset allocation based on true diversification. By “true” we mean assets that have different correlations with each other. Too often we come across a portfolio with perhaps 3 or 4 different large cap mutual funds. In many cases these funds will be highly correlated and will most likely respond to market moves in a similar manner. This is not diversification-it’s just more of the same thing. We try to include many different asset classes such as commodities, currencies and alternative investments in a portfolio to truly add diversification.
Should you own a stock mutual fund or individual stocks? There are a number of different types of investments that can be used such as mutual funds, exchange traded funds, closed end funds, unit investment trusts and individual securities. All of these different investment types have different characteristics and our choice will depend on those characteristics and your preferences. In most cases we will use a combination of different investment types.
When do you sell an investment? We generally feel that you sell an investment for the same reason you bought it. If the circumstances have changed then it may be time to sell. We like to discuss the reasons why we may exit a position at the time of purchase and have an exit strategy in case things don’t go in the direction we expect.
It’s important to have a formal investment process that defines the steps associated with developing a portfolio. Our process is as follows:
- Define Investment Parameters (Goals, Risk Tolerance, Income Needs, Time Horizon, etc.)
- Determine Advisory Style (Fee-based or commission-based; Discretionary or Traditional)
- Establish initial Portfolio Allocation
- Decide on Investment Types (Individual Securities, Mutual Funds, ETFs, etc.)
- Perform Final Due Diligence on Selected Investments
- Make the Investments
- Monitor Investments and Performance
- Adjust Investment Parameters and Specific Investments as Needed