Once we have settled on a policy that reflects your attitudes about investing and a portfolio design that will help you pursue your goals, the next step is managing your investments. This is the subsequent selection of investments (the actual buying and selling) in keeping with the overall portfolio design.
Managing a portfolio is one of the most important steps in the investment process. Properly managing an investment portfolio requires knowing not only what investments to purchase, but also when to buy and when to sell them. In addition, managing a portfolio requires constant monitoring of performance, along with rebalancing and making adjustments as needed. Our service in this process is where Tevis Investment Management will set ourselves apart from others in the industry.
At Tevis Investment Management, our goal is to create a wealth management strategy that maximizes your investment return given your specific situation, life goals, and tolerance for risk. The key to this process is developing an optimal asset allocation plan which includes proper diversification across the various asset classes.
A Disciplined Process
To design, implement and consistently deliver an appropriate and effective wealth management strategy for you, we have created a strict four-step process. Our process is disciplined, informed, and thorough — and ensures our best performance in meeting your goals.
The four steps, which have been perfected over time are as follows:
Discovery and Fact-Finding
Review and Monitoring
1. Discovery and Fact-Finding
To achieve your optimal wealth management strategy it is essential to completely understand and consider your unique circumstances. Building your unique, tailor-made wealth management strategy includes all of the following:
Long-term and short-term objectives
Current and future income needs
Financial and tax situation
Current asset allocation
Existing portfolio characteristics
We obtain this information through a series of conversations with you and your current advisors such as your C.P.A. and your estate planning attorney. This information is used to evaluate and clearly define your objectives, expectations for return, and tolerance for risk.
2. Asset Allocation
We believe that proper asset class diversification is critical to achieving your investment goals and managing risk. It is impossible to predict with any certainty the future course of the economy or the future return of a specific asset class. Asset class performance varies over time. Therefore, it is very important to have an asset allocation that is consistent with your risk tolerance and goals.
Developing an Optimal Asset Allocation
To establish the optimal asset allocation, we make judgments about the likely returns and volatility of each asset class. We will continue to evaluate and analyze current economic conditions, asset valuation measures, and financial markets to assess the future risk and return for various asset classes. The more asset classes your portfolio is exposed to, the less volatility for your portfolio. In other words, a portfolio containing both small cap stocks and large cap stocks will be less volatile than a portfolio containing only small cap stocks.
Equities or Fixed Income
After your financial objectives and risk tolerance are determined, we proceed with the asset allocation process by recommending what percentage of your portfolio should be held in equities versus fixed income investments. In general, investors with long investment time horizons have portfolios more heavily weighted toward stocks, because these securities historically have generated higher returns over time.
Based on your risk profile, a further allocation is made among equity and fixed income asset classes (international, tax-exempt fixed income, domestic large cap, small cap, hedge funds, cash, and so forth) designed to provide the greatest return for a particular level of risk. The allocation is based on long-term expectations of risk, return, correlation (a measure of the degree to which two assets move together), and other factors for each asset class.
We do not believe that investors can successfully add value by re-allocating their portfolios to anticipate short-term market actions. Industry studies have shown that market timing, or tactical asset allocation strategies are very difficult to implement successfully over time. Investors might know when to exit the market at the right time but not when to re-enter. In addition, the tax liability and trading costs resulting from these short-term movements may exceed any derived benefit.
Ensuring a Disciplined and Focused Execution of Your Plan
Factors and decisions used to determine your optimal asset allocation strategy are summarized in the fact-finding session in step one of this process. At this stage of the process, the investments we choose for you should reflect your goals and objectives, and the investment strategy developed to meet them over the long term.
4. Review and Monitoring
Consistently Managing your portfolio
In addition to shifts in a long-term allocation strategy due to changes in return expectations, we also review portfolios to ensure that the asset mix continues to meet your needs and circumstances. Significant life events can fundamentally alter investors’ goals and objectives. Events may include marriage or divorce, becoming a parent or grandparent, retirement, or sale of a company. Each of these events and many other circumstances requires a review of the existing strategy.
Market performance over time also can change an asset allocation mix compared to the established strategy. Asset classes may grow at different rates. For example, stock market appreciation over the last several years has been so strong that a portfolio’s allocation to stocks versus bonds can grow far greater than intended. It is important to adjust the portfolio from time to time to maintain the established long-term asset allocation mix.
Our careful focus on ongoing management helps us maintain the appropriate balance of risk and reward over time, and consistently manage your portfolio according to your optimal strategy.