1.       Asset Allocation

    We believe in taking your investment dollars and placing them in fundamentally different investment classes (US companies, foreign companies, real estate, commodities, etc). This is known as Asset Allocation. The idea is to invest in areas that tend to behave differently at the same time. Why is this important? Because we believe in portfolio optimization over portfolio maximization. An optimal portfolio seeks the maximum growth while assuming a given level of risk. Whereas, portfolio maximization is the pursuit of the highest possible returns while ignoring all else.   For example, it’s true that US small cap stocks have historically outperformed US large cap stocks. Does that mean 100% of your money should be invested small cap funds? Of course not. Why? Because with the potential for growth comes potential of loss. And in years like 2008 that matters. Who cares if you’ve averaged 20% over the last 15 years if you lose ½ of your account value 6 months before retiring? Optimize. Don’t seek absolute maximization when it comes to your nest egg. Risk matters, and asset allocation is a way to balance risk and reward.

2.       Diversification

     Once your asset allocation is determined we now must take it a step further. Enter diversification. Diversification takes each asset class and ensures there are many (in most cases hundreds) individual holdings within each class. For example, it’s not enough to own one single large company’s stock to represent your large cap asset class. Instead we believe that you should own hundreds of large companies. Or take commodities. You have oil, precious metals, agricultural, and so on. Diversification says you should own many different types of commodities instead of just oil, for example. Bottom line is this: Diversification is important because if a subsector plummets or one company goes bankrupt you will own hundreds of others to keep the overall asset class afloat (Enron anyone?).

3.       Rebalancing

      Now that your asset allocation and diversification is determined there is one final step. We must continually monitor the account. This is because over time your portfolio begins to drift. For example, what started as an 80% stock/20% bond portfolio could easily morph into a 90/10 allocation after 5 years of rising equity markets. This is a problem. Why? Because a 90/10 carries greater risk. In other words, a down market may affect a 90/10 portfolio much more than an 80/20. Not good. Complicating matters, you are now 5 years older and likely more sensitive to loss. Because of this we believe in the discipline of rebalancing. For our advisory clients, we do this based on drift. How does this work?

 On occasion, the market provides an opportunity to capitalize on volatility. Because of this each asset class will have relative drift parameters of 3%. For example, if US mid-size stocks suddenly surge sending your mid cap position swiftly above the 3% “guardrail” then a sell trade will be executed. This does 2 things: It locks in the gain and moves the allocation back to the original allocation thereby bringing your risk back to the pre-surge level. The opposite works as well. If markets drop rapidly it can provide an opportunity to purchase more of the affected asset class allowing you to, “enter that asset class at a lower price.”

Core philosophy of investment selection

We believe that the aforementioned portfolio philosophies (asset allocation, diversification, & rebalancing) are by far the most important determinant of your portfolio’s success. At the same time we must select the specific investments to be used in your account. There are over 9,000 mutual funds in existence. So how do we choose your funds? We have developed a disciplined selection process that involves 4 tenants used in screening the mutual fund universe.

1.       Low Fees

a.       We can’t control performance, but we can control cost. We believe that mutual funds should have fees in check. According to a 2016 Morningstar report, the average mutual fund carried an annual expense ratio of approximately 1.17%. We believe in keeping cost well below that number.

2.       Minimum 10-year history

a.       There needs to be a track record. The last 10 years have provided all sorts of market condition. We want to see how each fund performed during each time period.

3.       Manager Tenure

a.       Mutual funds are run by people. Who are these individuals? What is there experience? What has been their long-term results? Have they maintained discipline in all market environments? Experience matters. We primarily select funds with experienced managers.

4.       10-year performance

a.       What is the fund’s 10 year results? How does this compare to other funds in the same category? Performance in shorter periods of time can be misleading. We believe that looking at a 10-year period provides a good metric for measuring baseline performance. However, past performance is no assurance of future gains.


Although we have spent considerable time and conducted extensive analysis on investment selection we want to reemphasize this point: We believe that your portfolio’s success is far greater a function of your willingness to embrace & maintain our core portfolio philosophy (asset allocation, diversification, & rebalancing) and far less what individual investments your own.

Of final mention, when I founded TWM I made sure to adopt this key philosophy: The most important factor to your success has to do with your own behavior. And my greatest calling as your advisor is behavior modification. It’s not market performance or some elaborate tax strategy. It’s behavior. Plain and simple.  That is what leads to success in the area of money, and quite frankly where we believe our value as your advisor lies. Historically, investors have been their own worst enemy. Many neuroeconomic studies point to this. Humans are emotional creatures and emotions can be very dangerous. Why? Because study after study shows emotions can lead to poor decisions. When markets drop, people tend to sell. When stocks rise, people want to buy.  Sometimes all it takes is one big mistake at the wrong time to cause serious damage. As your advisor I will do everything in my power to keep you on the straight and narrow. I will politely challenge what I see as major mistakes in your decision making and encourage positive and constructive behavior.

For advisory clients we will develop a written plan that will serve as your financial road map. Yes, I will develop your portfolio the best I can but that’s only a small piece. As my mission statement lays out “Our mission is to ensure that our client’s current actions are properly aligned with future goals.”  Therein lies the real value of any advisor.