Nobel Prize Winning Investing Approach
The Planning Step
The first step in our investment process is to develop an investment policy statement (IPS). The IPS is a written planning document that describes your investment needs, objectives and the constraints that apply to your portfolio. It may state a benchmark that can be used to asses the performance of the investments and to asses whether the objectives have been met.
We review and update your IPS regularly or when a major change in your objectives, constraints or circumstances occur.
The Execution Step
Based on economic forecasts, we form a proposed allocation of asset classes that is optimized and suitable for your goals. We analyze the ideal weightings and distribution between cash, stocks, and bonds. In some cases, we may also include alternative assets such as venture capital and private equity.
We then construct your portfolio taking into account your target asset allocation, your risk tolerance and other requirements as set out in the IPS. A key objective is to achieve the benefits of diversification as well as to manage the overall risk of the portfolio.
The Feedback Step
Once we construct your ideal portfolio, we monitor it and review it regularly. When asset weightings have drifted from our target levels as a result of market movements, some rebalancing may be required. The portfolio may also need to be revised if your needs or circumstances have changed.
Finally, the performance of the portfolio must be evaluated, which will include analyzing and assessing whether your objectives have been met.
our Investment Philosophy
In our view, a consistent long-term strategy is key to protecting and growing wealth over time.
LONG TERM STRATEGIC ASSET ALLOCATION
We believe that over the long run, the right strategic asset allocation should contribute to about 80% of most portfolios’ risk and return. Therefore, a well-constructed strategic asset allocation is the central component of successful long-term performance.
The portfolios we recommend aim to maximize return, relative to risk while taking into account the investors risk tolerance.
INVESTORS SHOULD NOT LOSE LONG-TERM FOCUS
Behavioral biases are more likely to emerge when markets are volatile and investors feel uncomfortable about the volatility of their portfolios. This could lead to losing long-term focus and discipline, potentially selling a portfolio after it has declined, or failing to invest following a market rebound.
INVESTORS CANNOT EXPECT RETURN WITHOUT RISK
Today, due to excess savings over investment opportunities, prospective returns are low. This means that investors cannot expect to achieve returns above inflation without taking risks. Investors are at an increase risk of failing to meet their financial goals if they take less risk than they are willing to bear.
DIVERSIFICATION CAN INCREASE RETURN and decrease RISK
Over the last 20 years, a portfolio comprised of 100% investment grade US corporate bonds would have returned 6.2% annual return with an annual risk of 4.5%. By shifting 15% of the portfolio from bonds to stocks, the portfolio would have delivered a higher return (6.7%) with slightly lower risk (4.3%). Source: UBS