R Judd Wealth Management believes in an asset allocation and rebalancing approach that incorporates some exposure to broadly diversified indexes alongside active management. We believe this delivers best-of-both-worlds results at a very reasonable cost.
The value of asset allocation is that over time it helps to create more stable and predictable returns with less volatility (risk). This is especially important to someone that is nearing or in retirement, or someone that has lower risk tolerance. By blending together several asset classes (stocks, bonds, commodities, real estate, currencies, etc.) with a diversified approach within and across asset classes, you are likely to experience a more stable and predictable return trajectory than if you are invested only within niches in the market. At RJWM we will recommend an appropriate target allocation for your circumstances, understanding your wants and needs from your perspective.
Indexing is an efficient way to capture exposure to a market, asset class, sector, or even an industry at a very low cost. As index investing has changed over the years from primarily mutual funds to now exchange traded funds (ETFs), we have the flexibility to purchase and sell an index as if it was a single stock. This allows us better control over what price we pay to buy an ETF and what price we receive when selling an ETF. We can even incorporate risk management techniques with ETFs that were previously impossible when using only index mutual funds.
Because indexes have very little turnover from one year to the next, they are also very tax efficient, making them great investments in any type of account whether taxable or non-taxable. You may even be surprised to learn that index performance is also very good. In Vanguard’s April 2014 article titled “The Case for Index Fund Investing”, they found that 68-82% of U.S. large-cap value equity funds underperformed their benchmarks over the 10 years ended December 31, 2013.
Fundamentals and valuations matter.
While index investing helps to create more predictable returns with less volatility and cost than active management in general, fundamentals and valuations are vitally important. Market gurus such as Warren Buffet have been able to use a methodology of investing to produce returns far greater than the general stock market for long periods of time. What’s the secret to his success? Buying businesses with good fundamentals at reasonable valuations, and exercising discipline and patience.
There are many theories on how to best buy companies. At RJWM, we believe in incorporating a combination of some of the best equity selection models into our portfolios. We desire to own some of the game changing companies of the future. We also believe in owning great historical brands with near impenetrable moats. High dividend paying businesses are also very desirable in this low interest rate environment. Preferred stocks, real estate investment trusts (REITs), master limited partnerships (MLP’s), and corporate, municipal and treasury bonds are also attractive purveyors of income that we will incorporate into our portfolios over time.
Through our custodial and clearing relationships, we have access to the best third-party money management solutions available today. We will follow and oversee these management opportunities and provide ongoing due diligence. Where it makes sense, we will include these best-in-breed managers into your portfolio and continue to oversee our exposure making sure each one continues to earn their seat at the table.
The primary goal of portfolio rebalancing is to reduce risk relative to the target allocation. The portfolio’s asset allocation is the major determinant of the resultant risk/reward characteristics, but as the performance of various asset classes changes over time, the allocation of the portfolio changes too. There is much debate regarding the optimum frequency of portfolio rebalancing and in the end it really depends on how volatile the market has been and will be going forward. Your portfolio will be comprehensively rebalanced every 6-12 months or as market conditions warrant.
Let us show you how we can help. Schedule an initial consultation today by clicking the following link: https://www.timetrade.com/book/YBZ7C.