First and foremost, MAM only receives fees as a percentage of assets under management (1% or less on an annual basis). Hidden fees or commissions do not cloud MAM’s investment philosophy. There are no inherent conflicts between what is in the client’s best interest and less attractive investments that pay high commissions. In addition, there are no incentives to constantly buy and sell within a client’s portfolio.
Asset Allocation and Diversification
Diversification is important for achieving consistent good investment performance. Portfolios are diversified among large capitalization, mid-cap, and small-cap U.S. stocks, bonds (high quality, high yield and international), alternative assets, and foreign equities. In addition, equity investments are allocated between growth and value fund managers.
Risk Assessment Questionnaire
MAM manages portfolios based on a client’s risk tolerance. This is done by having each client complete a Risk Assessment Questionnaire (RAQ). The answers in the completed RAQ are evaluated and assigned a numerical score. Each client’s portfolio is constructed and monitored factoring in the client's age and RAQ score.
In managing investments, protecting portfolios during market declines is very important. Without "downside protection" the risk is that investors may feel inclined to liquidate their investments after a substantial market decline because of their fear of further market losses. Some investors did just that during the 2000 - 2002 or the 11/07 - 3/09 bear markets. Through the use of bond funds, conservative equity funds and alternative assets, we help clients “stay the course” during market downturns. While this “downside protection” may mean portfolios underperform during the bull markets, the reduced losses in the down markets more than makes up for it.
No-Load Mutual Funds and ETFs
MAM’s investment philosophy centers on no-load mutual funds and exchanged traded funds as the most efficient and cost-effective vehicle for implementing asset allocation and diversification strategies while providing a solid platform for investment growth. A portfolio comprised of 20-25 funds provides more diversification than a portfolio of individual stocks. Selecting specific mutual funds that invest in stocks, bonds or alternative assets provides the asset allocation and diversification required for a sound investment portfolio.
In addition, by utilizing a registered investment advisor like MAM, you will have access to some funds that are closed to new investors. Furthermore, as a registered investment advisor working through Schwab Institutional, certain mutual funds that normally can be purchased only by paying a sales load are available without sales loads to MAM clients.
On-Going Monitoring, Review and Adjustment
Once a customized portfolio of good funds with proper asset allocation and diversification has been created based on your age and Risk Assessment Questionnaire score, we review and adjusts the portfolio as necessary in light of the changing investment environment. As many investors realize, the investment environment can change dramatically over time. A critical step to achieving good investment performance is to make adjustments based on these changes. For instance, the best performing companies in the late 1990’s were technology companies. Value stocks and REIT companies lagged in performance during this time. This changed dramatically starting in March of 2000. During the summer of 2000, MAM portfolios were adjusted to reduce technology exposure, and increase small cap and REIT exposure. Later commodity exposure was added (and subsequently removed) to benefit from increasing commodity prices. Currently, portfolios have a fairly conservative asset allocation in light of the fragile state of our economy, the dramatic increase in stock prices since March of 2009, and our expectation for muted investment returns during the next three to five years. While inflation is not currently a concern, eventually we expect rising inflation, higher interest rates, and a falling U.S. dollar. To protect against rising inflation, at an appropriate time we plan to add inflation hedges (exposure to commodities, REITs and TIPS) to portfolios.
In summary, the approach used by MAM is to build a diversified portfolio that is compatible with your risk tolerance score. Based on market events, at least semiannually we reposition the portfolio to adjust for the changing investment dynamics. Finally, we view the portfolio and the stock market with a long-term horizon. We don’t become overly influenced by the day-to-day gyrations of stock prices and do not let our emotions dictate our investment decisions.