The markets will fluctuate daily based on the news flow and many

unpredictable events. The market’s movements in response to these

changes cannot be predicted. In the long run, markets respond to

economic growth, and the economy grows as the population grows, as

equipment wears out and needs to be replaced, and as new technologies

become available.

• We recommend that cash needed for known immediate / short – term expenses should be removed from the investment portfolio.
• Rolling 36 Month periods is the minimum timeframe to evaluate performance.

The markets are usually efficient.  That is a fancy way of saying that the price of any stock on any given day reflects all the known public information about that stock. The price is the average of everyone’s opinion. Some people think the price should be higher, so they are buyers, and some think the price should be lower, so they are sellers. For this reason, trying to pick individual stocks that are undervalued is a guessing game. As news comes out, the market digests that new information almost instantly and prices adjust.

Risk and expected return are related. Because the stock market outperforms bonds and cash investments over the long haul, we expect that the more stock investments included in a portfolio the higher its return should be over time. Portfolios with a lower allocation to the stock market will be less volatile but will also be expected to produce a lower long – term return.

Taking the right type of risk is important. Taking the risk of being in the market drives your long –term expected results.

Because the market fluctuates with economic expectations, this type of risk is called “Systemic Risk.” We expect the more systemic risk you take, the more return you should expect over time.

Another type of risk, called “non-systemic risk,” is the risk associated with any individual company’s performance. A drug company can have a bad clinical trial, or an oil company can have an accident. Individual companies can go bankrupt, leaving their stocks worthless. Because the markets are efficient, choosing individual stocks does not provide more potential return, but does mean taking more risk. For this reason, we prefer portfolios built from broad, diversified funds rather than from stocks or bonds from individual companies.

Asset Allocation is much more important than Stock Selection. Asset allocation refers to how a portfolio is divided up between stocks and bonds, and how those broad categories are broken down into types of stocks and bonds. Research has shown that 94% of a portfolio’s return comes from this decision (Brinson, Hood and Beebower – Financial Analysts Journal – February 1995)

We believe in global diversification in any asset class where the
opportunity exists. The financial markets span the globe and are interconnected, and your portfolio should reflect that with broad, global exposure.

• We prefer hedging currency risk in fixed income, but do not hedge currency exposure in more volatile asset classes like equity or real estate.
• We start with the global market portfolio, and then tilt our models to match our preferred exposures.