Our Philosophy – Investments

Investment Philosophy

Our goal is to devise a portfolio targeted to each client’s needs while looking to manage the volatility and risk as much as possible. We do this by including a variety of investments that have low correlations to each other. On the fixed income side, we have access to a vast array of fixed income products, including taxable and tax-free bonds, preferred stocks, agencies and others. We do not maintain an inventory of these holdings and as a result are only buying individual securities for clients based on our analysis of these securities. We also use adjustable interest-rate securities to hedge interest-rate risk and to protect the portfolio in a rising rate environment.

On the stock side, we would typically suggest that a portfolio be built around pooled investments (e.g. low-cost, no-load mutual funds and exchange-traded funds) and certain individual securities, depending on the circumstances of the client. For some of our clients we utilize a covered call strategy to generate cash flow and/or income for a client and at the same time to provide some protection against losses in the overall stock market. We can adjust this strategy to provide greater income and less risk (with little growth opportunity) or less income with greater growth opportunity. This can be a powerful strategy to match a client’s needs for income with their ability to withstand risk of loss. In any case, the covered call strategy would be less aggressive than owning a stock outright.

Managing Risk

The stock market obviously brings significant risk along with significant opportunity (as evidenced by recent events). The bond market is facing a period of rising interest rates (eventually) that would not bode well for fixed income investments in a portfolio (but would be good for reinvestments of maturing securities). Cash and other safer investments are punished by the low rates offered as well. We look to mitigate against each of these risks directly. On the stock side, we do this by targeting investment in companies of various sizes, spread out across a large number of holdings and with attractive valuations relative to the market. A conservative use of options (incorporated into a covered call portfolio) can be a powerful tool to further protect these assets from losses. Market neutral mutual funds also contribute to reducing the risk within the stock portion and across the portfolio in its entirety. Taken together, we aim to take advantage of as much upside as possible without exposing portfolios to unnecessary risk of loss.

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