Investment Methodology


We use principles of a Nobel prize-winning investment theory for optimal diversification.

Although return is the first thing on most investors’ minds, we spend significant time evaluating the volatility of various investment options and how they behave when combined. The real goal of diversification is to combine assets in such a way as to achieve the least amount of risk for a given level of expected return. Or said differently, the opportunity for the most return for a given level of expected risk.

Structural Analysis

We begin our disciplined process by identifying the range of portfolios that we will develop and what risk and return characteristics should apply to each. These portfolio strategies are suitable for most investors, from conservative to aggressive. They focus on attempting to reduce short-term volatility and chance of loss while giving the investor the opportunity to outpace inflation.

Asset Allocation Decisions

Asset allocation is the process of deciding how much money to invest in a particular asset class, such that the combination of asset classes fits into each of the portfolio strategies identified in the structural analysis in an efficient manner. Asset classes are categories of investments with common characteristics.

The goal is to identify the combinations of asset classes that maximize return for a given level of risk or minimize risk for a given level of return. The process requires forecasting future return and risk statistics.

We develop forecasts using a combination of historical data and current market information. In our view, appropriate asset allocation decisions involve applying reasoning beyond that which historical numbers may imply.

Security Selection Decisions

Our research team tracks and provides information on any of the securities available within your employer-sponsored plan. Incorporated into our selection analysis are:

  • The investment’s strategy (is the investment staying true to its objective?),
  • Its people (are managers frequently changing?, what is their track record?),
  • Short and long-term performance (is the investment showing value above the benchmark?),
  • Expenses (are costs dragging down long-term performance?), and
  • The overall role in the portfolio (does it contribute to the risk and return objectives of the portfolio?)

Reallocation and Rebalancing

Monitoring the portfolios is an ongoing process. We regularly evaluate whether the portfolio stays in line with its stated objectives; whether the investment options are exceeding benchmarks; and whether market conditions are influencing the portfolio’s behavior beyond expectations.

The Investment Committee meets quarterly to analyze the portfolios and market conditions. If conditions suggest the portfolio’s efficiency would benefit, the Committee may decide to reallocate the portfolios by making adjustments to the asset class weightings, staying within the guidelines of each portfolio’s investment policy statement.

Studies show that regular rebalancing enhances a portfolio’s long-term results. Rebalancing decisions also are made quarterly at the scheduled Investment Committee meetings.

Our methodology has been influenced by these important papers:

Adaptive Asset Allocation – written by William Sharpe this paper analyzes the impact of asset class momentum on portfolios.

fi360 Graphical Overview – A leader in establishing a fiduciary practice for investment managers, advisors and stewards, fi360 has established a clear process for investment selection and monitoring.

Global Tactical Asset Allocation – Conceived by Goldman Sachs, the Global Tactical Asset Allocation methodology attempts to improve a portfolio’s risk/return profile.

Ibbotson Methodology – An original analysis by Ibbotson Associates formed the basis for the seven investment strategies that we employ.

Robust Asset Allocation – Another paper by Ibbotson Associates that analyzes the empirical evidence for the Black-Litterman and resampled mean-variance optimization models of asset allocation.