We help each investor find the right balance between safety and faster growth potential (with accompanying risk). The traditional metaphor of ‘the tortoise and the hare’ may come to mind. We usually recommend some combination of both — subject to the investor’s age, circumstances, risk-tolerance and goals.

As mentioned, we certainly ‘stand on the shoulders of giants’ like Fidelity, Blackrock, and T.Rowe Price. Household name Fidelity serves as our brokerage account custodian and virtual ‘supermarket’ of investments. Blackrock is the largest asset manager in the world. Their Aladdin® technology includes risk analytics designed to improve risk-adjusted returns. We utilize their Model Portfolios and similar Target allocation Institutional funds. T.Rowe Price runs a line of no-load asset allocation mutual funds with a strong track-record in active management and low internal expenses.

Added Investment “Pillars”

While most advisors rely heavily on bonds for diversification and risk reduction, we believe the multi-decade ‘tailwind’ of declining interest rates is probably over. Meanwhile, by 2018, U.S. stock valuation were elevated by historical measures. Therefore it may a particularly auspicious time for market—neutral strategies to receive a place in investor portfolios.

A backtest study by AQR (“Building a Better EMN Strategy”, April 2015) compared a traditional 60/40 stock & bond portfolio to ones that shifted part of the long-only equity exposure for equity market neutral (EMN). They found, “Even a modest allocation to EMN leads to a meaningful reduction in volatility… Lower risk and a similar return lead to a meaningful improvement in the risk-return tradeoff.” They then noted the improved risk-adjusted return evident in the higher “Sharpe ratio”.

Blackrock is a leader in market-neutral strategies.  While most institutional share classes from Blackrock require a minimum investment of $1 million, that hurdle is waived for clients of RIAs like Wolf Money Management Inc.

Tactical Monitoring

Not all markets are created equal. There are bull markets, where the general trend is up, and then there are bear markets, where the trend is down. “Buy and hope” is not a good strategy during major bear markets like those that ran in the stock market from late 2000-early 2003 (the “tech wreck”) or of course the financial crisis of 2008-early 2009. Despite the memory of those painful events, few advisors will even ‘ease off the gas pedal’ before the next major bear market.

Yet from our careful study of all major bear markets in stocks over the past century, one key technical indicator has proven its value as an early warning of trouble ahead. When the “breadth” of an advancing stock market falters, that raises a ‘yellow flag’ or worse. We think a reasonable response is to lighten up on equity exposure. Conversely, so long as “breadth” continues to confirm the new highs of an advance, declines have been limited in depth and duration — merely “corrections” to be weathered or even viewed as opportunities to “buy the dips”.

The Case for Guarantees

When held over the long-term, U.S. stock mutual funds/ETFs have often been the fastest appreciating investments, but volatility can be trying. Periodically, even good “bull” markets feel like this 🙂

So we understand the popularity of owning some principal-guaranteed accounts during retirement. In a broadly diversified portfolio, there is a place not only for stock, bond, and market-neutral mutual funds/ETFs but also one or two principal-guaranteed accounts. Fixed annuities are considered the ‘good guys’ of the annuity world, but even there we carefully screen from dozens of companies to separate ‘the wheat from the chaff’.

Have more questions? We’d love to hear from you — use the contact form, email, or just call.