Jerry Miccolis, our Chief Investment Officer and author of Asset Allocation For Dummies® (Wiley, 2009), and the team at Brinton Eaton have been working for some time to advance the science of investment risk management. They have built upon the time-tested framework of diversification and rebalancing to take portfolio design to an entirely new level.
In our quest to improve how we practice investment risk management, we are not abandoning the proprietary strategies that have worked well for us and our clients in the past. The asset allocations we employ are the result of rigorous modeling on our part, and incorporate the following key features:
- The expected return of each asset class
- The volatility of that return
- How that return relates to the expected returns of the other asset classes in your portfolio.
Additionally, our overall goal remains unchanged: to find the right mix of assets that will give your overall portfolio the best return potential for the least risk. However, we have now made our asset allocation methodology much more dynamic by creating a more advanced proprietary modeling system that:
- Better captures the complex relationship between assets in different market environments (including, for example, the outbreak of “contagion” when virtually all normally unrelated asset classes decline suddenly at once, as they did in late 2008);
- Includes more sophisticated measures of risk that paint a more accurate picture of what can happen when certain things go wrong; and
- Operates much more quickly and efficiently
The result? We believe we are more nimble and proactive than our peers in reacting to fundamental changes in the market and economy in order to improve our investment results. This is critical in today’s complex world where geopolitics can change daily and potentially disrupt your portfolio.
