An asset allocation is an investment strategy that seeks to balance risk and reward using a selection of investments. Asset allocations can be simple. Perhaps 60% of a portfolio invested in stocks and 40% invested in bonds. They can also be complex, utilizing alternative investments like private equity, commodities and hedge funds. While stocks have historically offered the highest returns of the broad asset classes since the mid-1920’s, the returns have also been the most volatile. For a variety of reasons, investors might not be able to tolerate sometimes-large portfolio gyrations. Holding of assets that are not highly correlated—do not move in lockstep—with stocks in an asset allocation portfolio is an attractive solution that can lower risk and reduce portfolio losses when stock prices fall.


Asset Allocation


Diversification, reducing risk to a specific asset or factor, is the only free lunch in the investment world. As such, we have extolled the virtues of broad diversification within our portfolios (in which we usually own 70 to 90 stocks) since the first edition of The Prudent Speculator went to press in March 1977. While we would certainly argue that the selection of stocks in a given portfolio is important, so too is the amount of wealth dedicated to a certain area of the investable universe. In our wealth management experience, a person’s asset allocation is often the most important determinant of long-term performance.


We build our allocation portfolios on an investment foundation which we think is improved by a broad slate of investment choices available to our clients. While an investor’s individual considerations and circumstances ultimately drive what goes into the final asset mix, we have broken the investment universe into four main categories.


A diversified core stock portfolio with a Value tilt serves as the main growth engine for most investor allocations. Our Core Compounder approach is focused on multiplying capital efficiently, while keeping risk characteristics top of mind. We seek to bolster returns by opportunistically buying undervalued companies in any market environment and selling them when they’ve reached their appreciation potential.

Factor-oriented strategies (such as dividend & income, small capitalization or international value) function as complementary allocations to core stock holdings. Investments in certain historically rewarded factors seek to enhance the risk-reward calculation, add income via dividends and diversify an allocation without watering down the return.


A portfolio of laddered fixed income securities is constructed with the primary goal of preserving principal, acting as a Store of Savings. Secondarily, it should produce a meaningful after-tax income yield. From an allocation perspective, the capital preservation goal seeks to provide a source of liquidity that supports active rebalancing in the event of market downturn.


Direct ownership of real assets, including real estate, offers the potential to compound at a rate similar to publicly traded equities (REITs, mostly), but without direct correlation to day-to-day stock market movements and in a tax-efficient manner. In addition to the capital appreciation potential inherent in

Private equity investments are frequently appropriate for investors with long investment time horizons and an appetite for growth. In exchange for longer lock-up periods, private equity placements (often in attractively priced, privately held companies) can offer returns well in excess of comparable stock market index returns, albeit with higher risk.


Equity hedges can function as an essential Diversifier, offering an enhanced risk-adjusted return in comparison to a traditionally balanced stock-and-bond portfolio. Hedged equity strategies utilize a sophisticated set of options to reduce stock market risk and offer investors potential to benefit from market volatility. Hedging strategies are frequently offered in mutual fund or hedge fund structures, depending on an individual investor’s needs and preferences.


Our broad suite of investment opportunities come together as a foundation for wealth building through our comprehensive financial planning capabilities, which are extensive and touch on a wide range of areas, dependent on client-specific needs. We provide an objective and long-term approach to constructing your customized financial plan. We work as a team and function as the “quarterback” between you and your existing attorneys, tax advisors and insurance agents. And, in cases where you aren’t currently engaged with these professionals, we have a network to which we can connect you.

Our wealth advisors and financial planners are seasoned professionals who have spent much of their careers performing objective planning. Our process addresses investment management, estate planning and tax-related issues. Our process typically includes:

  • A cash flow plan that serves as a roadmap to ensure you are optimally allocated between Core Compounders, Stores of Value, Opportunistic Investments and Diversifiers, and that you are saving appropriately to achieve your goals – including spending before and during retirement, as well as incorporating philanthropic and legacy goals.
  • A comprehensive review – and recommendations on all other aspects of your financial life, including compensation & employee benefits, risk management (personal insurance) and tax planning.
  • A review of your existing estate plans and a “coaching” call to prepare you for meeting with an estate planning attorney, once you are at that stage in your financial life.