Your diversified strategy or total portfolio will be carefully selected to meet your specifications of income, safety or capital appreciation. Diversifying across low correlated asset classes helps you lower your portfolios risk at the same expected return. While Tradition is skilled at selecting individual stocks and bonds, we outsource client capital to leading asset managers to introduce the benefits of diversifying assets, global assets, and other unique asset classes to our clients. These proven complementary investments diversify and improve your portfolio’s risk adjusted expected return profile.
A sound asset allocation strategy includes systematic reviews and rebalancing. Through market gains and losses, a portfolio can become out of balance versus current objectives and will need adjustments to bring it back into line with your current allocation objectives. As people move through life’s stages their needs, preferences, priorities and risk tolerance change and so too must their asset allocation strategy. Asset allocation, which is driven by complex statistical modeling that includes expected return, expected standard deviation and correlation matrixes, is a more complex process than simple diversification, but the goal is the same, risk reduction.
Asset allocation is the process of selecting a mix of asset classes that closely matches your financial profile in terms of your investment preferences and tolerance for risk. It is based on the premise that the different asset classes have varying cycles of performance, and that by investing in multiple classes, the overall investment returns will be more stable and less susceptible to adverse movements in any one class. All investments involve some sort of risk, whether it’s market risk, interest risk, inflation risk, liquidity risk, or tax risk. Your individualized asset allocation strategy seeks to mitigate the risks of any one asset class through diversification and balance. Your allocation of assets will reflect your desired goals, priorities, investment preferences and your tolerance for risk combined with the realities of market opportunities with expected return and risk being two important elements. Asset allocation is an individualized strategy, so there is no one-size-fits-all perfect mix of assets. Your individual strategy is built on the careful consideration of the key elements of your total situation. Your Investment Objective is what you need to achieve using your investment dollars (improve current income or achieve capital growth). Risk tolerance reflects your comfort level with market fluctuations that can result in losses. This is a measure of your steadfastness, discipline and ability not to panic near the lows after substantial losses. Inflation risk and interest risk need to be considered as well. Your investment preferences reflect your comfort of knowledge of one asset class over another; we will work with you to increase knowledge across asset classes so that your allocation and comfort can include the assets that are best for you. Longer time or investment horizons naturally reduce risk as it diminishes the negative impact on any one year. It also allows for your immediate asset allocation to increase its expected return and expected risk profile as you will have the benefit of time and patience to recovery from any one bad year before needing the capital. Tax impact helps determine what types of assets you should hold but also where they should be held (personal taxable account or IRA for example).