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Model Portfolios
Our client accounts are typically based on one of four portfolio models. Each is comprised of between 10 to 14 mutual funds. Each of the funds we employ is thoroughly researched and chosen on the basis of several criteria: management's ability to offer long-term value; low fees; a shareholder-first corporate culture and; where appropriate, tax-efficiency.
- Conservative: This model seeks to preserve the long-term purchasing power of the client's assets. Our risk target is to not exceed a 5% loss in any 12-month period. For these portfolios, we err on the side of conservatism. To limit risk, our target "neutral " allocation for equities is 40%. This portfolio is most appropriate for investors who are uncomfortable with short-term risk, or who value capital preservation over the potential for longer-term returns.
- Balanced: This model seeks moderate growth by limiting losses to no more than 10% in any 12-month period. This portfolio has higher equity exposure - a 65% neutral target allocation - than in our conservative portfolio. Similarly, we err on the side of conservatism in managing this portfolio. The balanced portfolio is appropriate for those investors who want to participate in the equity markets, but who are somewhat uncomfortable with shorter-term risk.
- Growth: This model seeks to achieve risk-adjusted long-term growth with a loss limit objective of 15% in any 12-month period. It is well suited to retirement accounts with an investment horizon of ten or more years. This more aggressive portfolio has an 85% neutral allocation to equities. The portfolio is appropriate for investors who are willing to accept higher short-term risk in exchange for the likelihood of above-average long-term returns.
- All Equity: This model seeks higher long-term returns, but with higher risk. It is, as a rule, a fully invested, stock portfolio. Consequently, the ups and downs of the portfolio's returns will be as wide as the global equity market. It is possible that investors could lose 20% of their value or more, in a worst-case scenario, over 12 months. In the last major bear market, 1973-1974, U.S. stocks declined almost 50%. This portfolio is appropriate for investors with a very long time horizon and no concerns about short-term risk.
- Index portfolio equivalents: For interested investors, we have established index portfolios that parallel the four model allocations above. Utilizing Vanguard Index funds and iShares Exchange Traded Funds (ETFs), these portfolios are highly cost- and tax-efficient. They may offer comparable, or higher, after-tax returns for investors in the highest income tax brackets.
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