Wealth Management –
Individuals and Families

Asset Allocation Principles

• Investment Risk, defined as the probability that a given investment will decline in value. However, investments with higher risks generate higher returns in the long run. The key is to take the least amount of risk given the returns necessary.
• Investment Correlation, defined as how closely two investments increase or decrease at the same rate. This is not causality. Very dissimilar assets can be highly correlated. Identifying true correlation is the key to reducing portfolio risk.
• Investment Liquidity, defined as the ability to convert an asset into cash quickly without loss of value. Liquidity is necessary to mitigate risk and take advantage of opportunities. Investors should be paid a major premium for investments with low liquidity.
• Comprehensive Diversification, defined as analysis of the correlation of all financial assets, including employment bonuses, stock options, closely-held stock, real estate, and pensions.

Traditional Asset Allocation

Comprehensive Diversification

Example of Asset Allocation Review

Asset Allocation Analysis

• Portfolio consists almost solely of equity products
• Exclusive equity weighting carries tremendous risk; standard risk profile for this age group is 75% fixed income (bonds) and 25% equities (stocks)
• Exclusive equity weighting is not conducive for someone taking periodic distributions

Investable Asset Allocation Analysis

• Significant underweight in Large Cap
• Significant underweight in Mid Cap
• International represent a significant weighting of total equities
• Overall: the portfolio is significantly overweighted in the most volatile stocks from a market capitalization analysis

Example of Asset Growth Projection
Simulated Asset Allocation with Varying Distributions

Assumptions

• Beginning Market Value: $7,331,975
• Inflation: 1.0%
• Equity Return: 7.0%
• Bond Return: 4.0%
• Asset Allocation: 53% Bonds/47% Equity
• Fees: 0.75%