"We first determine the risk profile and the time horizon. Then, we recommend a portfolio of investments that reflect the client's specific needs. We adhere to the principles of modern portfolio theory, which holds that a properly balanced, diverse portfolio will perform better over time than any particular asset class. We recommend a diverse portfolio balanced among several asset classes. Periodic rebalancing is important to insure that the portfolio maintains its relative allocation over time," is how William Meyer III, partner with Strothman & Company in Louisville, Ky., describes his firm's basic investment approach. As most advisors follow this approach, differences in advisors can be seen in the investment types they employ. Some Overall Mixes
"For our clients that have smaller amounts of total investable assets, we use primarily mutual funds along with some individual stocks via separately managed accounts with specialized investment managers. For larger clients, the range of the type of investments can be quite large depending on the circumstances and preferences of the client. The type of investments can include hedge funds, private equity funds, and specialized partnerships such as oil and gas, timber, and unique specialties," explains David Fisher, chief investment officer and partner in F&D Advisors, an affiliate wealth management group of Atlanta-based Frazier & Deeter. In particular, with regard to mutual funds, F&D Advisors typically uses specialized mutual funds that when combined together are diversified by market cap, sector, and geography, according to Fisher.
"Our firm's philosophy is to use a broadly diversified approach. In addition to maintaining cash reserves based upon the client's near-term liquidity needs, we want to maintain positions in bonds, U.S. stocks, foreign stocks, and tangibles such as real estate investment trusts, natural resource funds, and commodity exposure. The mix is determined by focusing on the client's long-term financial objectives and risk tolerance with a Monte Carlo overlay using probability forecasting," says Mark Smith, president of M. J. Smith and Associates, which is affiliated with Raymond James Financial Services, in Englewood, Colo.
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On the fixed income side, M. J. Smith and Associates likes a diversity of Triple AAA rated bonds as a core position, complemented with some high yield and convertible bonds. On the domestic U.S. stock side, it usually creates a blend of large cap growth and value investments along with small- and mid-cap growth and value positions. Internationally, diversification is obtained with a core position in a mature economy large cap complemented with small cap and emerging market holdings.
Carina Diamond, managing director of SS&G Wealth Management, in Akron, Ohio, reports that in general the typical mix of investments for their clients is as follows: 20 to 30 percent fixed (which includes U.S. bond funds, foreign bond funds, real estate, mutual funds, and real estate preferred stock mutual funds), 20 to 30 percent international, 40 to 60 percent U.S. (small, medium, and large stock mutual funds), and 5 to 10 percent private equity REITs. It generally uses no-load funds and A Shares at NAV in fee-based accounts rather than individual stocks.
