Your personal investment objectives and risk tolerance will ultimately determine the asset allocation mix we recommend for your Managed Portfolio Account. The 3 major asset categories are cash, fixed Income and equities. Each asset category has advantages and disadvantages.
Equities, bonds and cash have unique risk and return characteristics. Generally, equities have higher expected returns over a longer time frame while fluctuating in value more over the shorter term. Cash and equivalents are generally considered to be quite safe and secure over the short term while providing very low rates of return in this current interest rate environment. Fixed income investments can be quite varied depending on the maturity date selected and the credit worthiness of the issuer. Longer maturity dated bonds can be quite sensitive to interest rate changes and corporate issued bonds can end up in default. Diversification is obviously the key to reducing and managing the inherent risk taken by investors.
Defining the asset mix of your portfolio is a critcal step towards achieving the goals defined by your Investment Policy Statement. We will work very closely with you on this vital step. Many studies have indicated that this asset mix decision will typically have a greater impact on investment returns than security specific decisions.
As a growth-oriented investor, your emphasis is on the potential for above-average returns and you are willing to accept a higher degree of risk exposure. You wish to obtain a return from income and capital growth that is substantially above average. Your need to generate current income is not an important consideration and your investment horizon is very long. Consequently, you are willing to make investments where higher risks are involved and can tolerate more than one year of negative total return in difficult phases of a market cycle.
As a balanced investor, you seek a combination of income producing assets and investments with capital appreciation potential, so as to generate sufficient growth of capital. You want to preserve the purchasing power of your assets. To attain this goal, you are willing to accept more variable returns in the short run in order to achieve better returns in the long term. You may or may not require current income. You have a moderate tolerance for risk and you are able to sustain losses through inevitible difficult phases in a market cycle.
As an income-oriented investor, the current generation of income (interest and dividends) and the preservation of capital are important objectives and you are willing to forego long term return potential in order to achieve them. However, you are not opposed to having, at times, limited exposure to assets that possess the potential of providing better returns. You are risk averse but you can tolerate moderate losses through difficult phases in a market cycle.
Camillo (Cam) La Civita