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Asset Allocation Process:Strategic

Our Starting Point: Risk Control
Each asset class assumes a specific role designed to protect our assets from the 6 major economic risk factors that have the most impact on our portfolios.  When we anticipate increased risk or “traffic”, we can easily shift lanes by over/under weighting the asset class without deviating from our investment  process  & continuing to move forward toward our destination!!!!

CORE RISK FACTORS:
INFLATION: HIGHER PRICES
CURRENCY DEVALUATION
SLOWING ECONOMIC GROWTH
DECLINING AVAILABILITY OF CREDIT
INCREASING REGULATION or TAXES
MARKET VOLATILITY

Investing is about defining the general direction in which you're going. Think of a seven-lane freeway in California. The “guard rails” may be your investment framework.   Each lane of the investment highway offers secular opportunities, but also very frustrating “risks” or “traffic” that may slow  down your journey. It doesn't tell you which lane to be in. That takes supplementing that secular view with very detailed cyclical views. Once you're driving, you have to figure out what other people are doing. You have to respect all the players, and allow yourself to continually be moving toward your destination.

  -Muhammed El-Erian

  PIMCO Bond Manager & former manager of Harvard Endowment

Identifying the "Efficient" Portfolio

Once we have determined our risk controls, we use portfolio optimization software to determine the the most efficient portfolio, or the portfolio which maximizes the amount of "expected" return for a given level of risk.  A fully diversified portfolio lies along this "efficient frontier"