BE Focuses on Education:
I’m happy to report that Brinton Eaton continues to increase our educational outlets, providing recent commentary on market volatility via our Special Bulletin, holding a webinar on Asset Allocation, conducting several high-profile media interviews and posting a number of relevant educational pieces delivered through our blog – which can all be found on our website – www.brintoneaton.com.
Of course, this is only a small sampling of our recent activity. We’re also pleased that EMERALD, our new “safety net” portfolio protection vehicle, passed a mini test during the recent “flash crash” in May. If you’re interested in learning more about EMERALD, please contact us within the next several weeks as we plan to purchase another note in the 3rd quarter to accommodate additional assets placed under management at Brinton Eaton.
In this issue, you’ll also learn more about how we have been using alternative investments on your behalf to reduce the volatility in your portfolio. As always, we welcome your feedback and input on future topics you would like to see addressed.
Enjoy the summer and look for more news to come.
President, Principal, and Senior Financial Advisor
You’re Among the Few Investors Who Are Truly Diversified We Use Alternative Investments to Manage Risk and Provide Upside Opportunity
By Jerry Miccolis, Chief Investment Officer, Principal and Senior Financial Advisor
Your financial advisor should be able to construct a portfolio that’s better diversified than one you could have created yourself. That’s exactly what we do for you, using a systematic approach that considers the broadest possible range of investments to create a unique portfolio that’s right for you.
Diversification used to mean spreading your money among stocks and bonds. That’s still an important part of diversification—but only a part—and advisors who stop there aren’t doing the best for their clients.
“In today’s volatile markets, you need to add alternative assets that both protect your downside and give you upside opportunity,” says Jerry Miccolis, CFA, CFP, a Principal of Brinton Eaton and our Chief Investment Officer.
What are alternative investments? They include commodities, real estate and market-neutral vehicles — as well as explicit portfolio protection devices. As part of sophisticated strategy, they’re one of the secrets of how to protect and grow your money.
Let’s look at how even a moderately well-diversified “moderate/aggressive” portfolio performed in the past decade. This illustrative portfolio has 45 percent in large US stocks, 5 percent in international stocks, 30 percent in bonds, 15 percent in commodities, and 5 percent in real estate (REITs). It would have returned 4.5 percent a year for the 10 years ending Dec. 31, 2009.
Jerry says “that’s not a bad return for a time period the pundits have dubbed ‘The Lost Decade for Investing,’ when the stock market actually lost value even including dividends.” In more typical times, the annual return on that portfolio could be expected to be in the neighborhood of 10 percent.
In contrast, a more traditional but similarly situated “moderate/aggressive” portfolio—with 65 percent in large US stocks and 35 percent in US bonds—would have returned just 2.2 percent a year over the same period. It would have lost purchasing power against inflation.
“What’s more, the better-diversified portfolio is less volatile over time than that old-fashioned stock-and-bond portfolio” Jerry adds.
But even adding commodity funds and REITs, while important, isn’t enough. You need to invest in other assets that don’t move in lockstep with the stock market.
And here are the instruments we blend in to make your portfolio able to weather the storms of the financial markets as you sail toward your goals.
Commodities can both improve the stability of your overall portfolio and boost returns over the long-term. The key with commodities—and indeed all investments–is periodic rebalancing. We systematically buy low and sell high by adding to your position when commodity prices are down, and by trimming back when they’re up. This keeps your allocation steady and adds extra return with no increase in risk.
Managed commodity futures. Besides “straight” commodity funds, we use these managed futures funds. They vary their positions (long or short) depending on price trends, and the best ones have a history of performing well whether commodity prices are going up or down.
Absolute return and market-neutral strategies offer ways to get stock-like returns with less volatility. It’s the kind of thing hedge funds attempt to accomplish. But hedge funds have high management fees and are illiquid. We use instruments that are liquid and far more cost effective.
Global infrastructure funds offer a way to invest in the building of roads, bridges, tunnels, schools, and hospitals, particularly in developing countries.
Agribusiness funds invest in companies whose main business is food production.
Portfolio protection, in the cost-efficient way we have designed it, exploits the market patterns that typically accompany severe market downturns (e.g., increased market volatility and asset class correlations) to provide a “safety net” underneath your portfolio.
Put all these together—plus traditional stocks and bonds—in the right proportions and you have a well designed, robust portfolio working for you!
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Jerry Miccolis, CFA, CFP, FCAS, MAAA, is one of America’s leading authorities on asset allocation. Jerry is also the co-author of Asset Allocation for Dummies® (Wiley 2009) and one of the originators of Enterprise Risk Management.
Did You Know:
Canada’s Central Bank raised its target-lending rate by a quarter percentage point to 0.5%. It is the first country in the Group of Seven to raise rates.
From a recent AP article regarding the Dow’s brief 1000-point crash: “Regulators now believe the disruption was caused by a toxic, not yet understood, feedback loop created when multiple trading schemes interacted…”
News & Noteworthy:
In April, S. Jervis Brinton was honored with a Trustee Service Award during the Bloomfield College Annual Gala.
In May, the Brinton Waiting Room was dedicated in the Carol G. Simon Cancer Center at Morristown Memorial Hospital in honor of S. Jervis Brinton, Jr. for his outstanding service to the Fannie E. Rippel Foundation.
Bob DiQuollo was honored at St. Benedict’s Preparatory School Annual Scholarship dinner.
Jerry Miccolis spoke on investment strategies at the Institute of New Dimensions in Bergen County. This was part of a series of classes organized by Warren Boroson, a financial writer previously with the Daily Record.
• The 2010 season of Shakespeare Theater of New Jersey
• Partnership In Philanthropy Dinner Event
• The Morris Museum’s Annual Golf Outing
• Madison High 5k Race
• Centenary College Scholarship Dinner
BE In the News:
The Art Directors Club of New Jersey has awarded Brinton Eaton a certificate of recognition for excellence in its recent rebranding of the company website, brochure and other marketing communications materials.
The Brinton Eaton Team:
We are very proud to report that David Hill’s wife, Andrea, gave birth to a healthy baby girl named Christina Nicole on April 23, 2010. She weighed in at 7lbs. 1oz.
We also would like to congratulate Abby Scandlen on her recent engagement. She plans to wed this October at Lake Mohawk in New Jersey.
And, we would like to thank Abby for helping to coordinate hosts and volunteers at one of this year’s Junior League, “Done in a Day,” events, working to spruce up the entrance of the Hope House Social Services of Morris County. Brinton Eaton demonstrated our support of both Abby and the Junior Leagues efforts by donating flats of flowers.
We want to thank our clients who continue to provide referrals to Brinton Eaton.
Brinton Eaton helps affluent clients protect, grow, administer and ultimately transfer their legacy. We aim to provide a worry-free state of mind that enables you to continue to lead a financially independent and deeply rewarding life as well as leave a legacy for generations.
If you are not already a Brinton Eaton client, and are interested, contact us for a no-obligation consultation.
Volume 1, Issue 2