“Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.”
– Seth Klarman
- The most fundamental principle of our investment process is diversification. Constructing, and then being disciplined about maintaining a diversified portfolio, one that holds many different types of assets, has been proven throughout financial history to increase the probably of higher longer-term portfolio returns, while at the same time tempering the overall risk of the portfolio. Diversification is truly the only “free lunch” of investing.
Strategic Asset Allocation
The foundation of our investment strategy is the development and implementation of a strategic asset allocation, based on your unique personal and financial circumstances and tolerance for risk. We work with you to determine an optimal strategic asset allocation after determining the appropriate level of risk needed to take to help you achieve your intermediate and longer-term personal goals and concurrently, your financial independence. This is the “scientific” portion of our investment strategy.
Disciplined Portfolio Rebalancing
- In conjunction with having a broadly diversified portfolio that utilizes a foundational strategic asset allocation, we believe one of the most important and effective tools for investment success over time is rebalancing.
- On a semi-annual basis (or more often if deemed necessary), the portfolio shall be rebalanced to bring the overall investment portfolio diversification back within “equilibrium,” or back to your recommended customized strategic asset allocation guidelines. Employing a “sell high, buy low” strategy, we add to areas of the portfolio that are undervalued, and reduce areas that are overvalued.
- Rebalancing is not meant to be overly constrictive or regimented, and is meant simply as a general guideline. Each investment and situation shall be evaluated on a case-by-case basis before rebalancing occurs.
Tactical Portfolio Adjustments
- Towerpoint Wealth believes it is myopic to simply “set and forget” a strategic asset allocation, and not have the flexibility to adjust it based on current, or more importantly, assumed future economic and market conditions. This part of our investment strategy is known as tactical asset allocation, where decisions are made on an as-needed basis. These tactical decisions are driven by our research and beliefs regarding particular market sectors and asset classes that may be undervalued and poised for a recovery, or which may be overvalued and poised to retract. Tactical asset allocation can be viewed as an “artistic” overlay to our “scientific” backbone strategic asset allocation and rebalancing strategy.
- Tactical decisions can sometimes seem counterintuitive to clients (“why are we reducing what has done well and adding to what has been out of favor?”) but the intermediate and longer-term benefits to strategic and tactical rebalancing are both documented and attainable. However, both confidence and discipline are required. As Warren Buffett said: “Be fearful when others are greedy and greedy when others are fearful.“
We consider costs and investment expenses to be one of the two “necessary evils” that impede the growth of a client’s net worth and portfolio. Studies have repeatedly shown that reducing costs can drastically increase the probability of success in one’s portfolio. At the same time, we believe that picking funds simply by lowest fee can sometimes be short-sighted, and discretion is continually exercised when considering the expenses of an investment within the larger spectrum of its overall merit. A strict focus on helping a client to “get better gas mileage” out of their portfolio by managing and reducing the drag of costs and expenses is paramount.
Taxes are the second of the two “necessary evils” mentioned above, and can severely impact investment returns if not monitored and controlled. While we never let the “tax tail” completely wag the dog, we do maintain a specific focus on helping our clients keep the tax impact of their investments and portfolio absolutely minimized. Utilizing careful fund screening, intentional asset location, and tax-loss harvesting decisions, we are diligent to do everything possible to minimize clients’ obligation to Uncle Sam.
Wealth Management Philosophy
The centerpiece of our wealth management philosophy focuses on developing a foundational strategic asset allocation, and then constructing a customized diversified portfolio specifically tailored to your unique needs and goals. We do utilize a set of target portfolios, diligently constructed with the investments that meet our Investment Committee’s strict criteria, as a template when working with current and new clients, but we also understand that all individuals are different and a “one size fits all” investment portfolio does not and should not exist. In most situations, our investment/portfolio-specific recommendations are centered on low-cost index and institutional mutual funds, and various exchange-traded funds, or ETFs. Where we believe active management is likely to outperform, we select managers of institutional-quality.
We do not believe any form of speculation, such as market timing or trying to “beat” the market, works over the long haul. And while we are certainly sensitive to and acutely aware of the movement of the financial markets, we will not rashly react to the daily, weekly, and monthly gyrations of the stock market. Instead, we accept that these gyrations can and will occur, and look to help clients benefit from them. Quoting Warren Buffett:
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
Most importantly, will be disciplined in working alongside you in helping you maintain focus on your unique and customized plan and strategy, channeling our energy towards what we can control (risk, taxes, expenses), and not what we cannot (politics, markets, economic changes).
Our Investment Committee
Our Investment Committee of five includes three of Towerpoint Wealth’s own, Joseph Eschleman, Nathan Billigmeier, and Steve Pitchford. The Committee also includes two outstanding outside professionals, Kevin Cooper and Joe Dursi. We believe including outside professionals in our Investment Committee is crucial to finding the right balance for our committee and its ongoing mission to create optimal target portfolios that are consistent with our six core investing principles of our wealth management philosophy.
What steps does the Investment Committee take to accomplish this mission?
Our Investment Committee Process
1. Define the objectives of our target portfolios
2. Design the mix of assets (bonds, stocks, and alternative investments) to be included in each target portfolio
3. Evaluate the individual investment fund options that are consistent with our core investing principles to be included in our target portfolios (please see Our Investment Selection Process below for more details)
4. Implement portfolio construction using these fund investment options
5. Monitor and analyze target portfolios
6. Consider modifications and tactical adjustments to the portfolios as the current market environment dictates
Investment Selection Process
1. Identify investments consistent with our core investment principles
2. Deep dive into each of these investments. We will review the:
– Peer-to-peer performance
– Risk attributes
– Tax efficiency
– Manager tenure
– Style consistency
3. Compare vetted investments in the same asset categories
4. Select optimal investment within each asset category
*Subsequent to finalizing investment selection and implementation, proactive monitoring of our current investments occurs on a regular basis.
**Towerpoint Wealth does NOT receive compensation from any of the investment managers selected for our target portfolios.