Client Question on Model Porfolio Selection

The following is a great question submitted by one of my clients. I have omitted the client's name.

Steve,

I see that the Golden Years portfolio has outperformed Go-Getters. Why did you let me chose Go Getters?  In either case both are doing a lot better than the market, so congrats. Is Go-Getters ever going to catch up? Should I switch?

GWM Investor



My Answer:

Dear GWM Investor,


All model portfolios have the same investment components or folios as I call them. They differ only in the percentage allocation to the various folios. Golden years has a 70% allocation to Flexible Income (mostly bonds currently), whereas, the Go-Getter model has a 25% allocation to Flexible Income. Bonds have outperformed stocks this year; so, Golden Years has outperformed. Will bonds continue to outperform stocks (both long and short positions) going forward? I don’t know.

My investment style is not predictive. It is reactive. Trying to predict the future is a task beyond my pay grade. Economist, analysts and the talking heads on CNBC always try to predict the future and have a very poor track record. No one knows the future. I always let the markets guide me; never the other way around. I believe this is the key to my success. The markets are huge and the markets couldn’t care less about what I think.

In general, investments that have an income component are inherently less volatile and risky than investments that rely solely upon capital appreciation. I have created a cadre of Model Portfolios that offer varying degrees of risk. One size does not fit all. In order, from lowest risk to highest risk, I offer the following Model Portfolios:

Golden Years, The In-Betweener, The Go-Getter and The Director.

GWM clients can always change their chosen model by submitting a new Risk Tolerance Questionnaire. Select the Risk Tolerance Questionnaire from the bullet list under the Clients Tab on the GWM Website.

Investor emotions often vacillate with changing market conditions. This is inescapable, it is human nature. Changing your investment objectives required thoughtful consideration and should be done only after careful consideration of pertinent facts. Your time horizon, your liquidity needs and your tolerance to potential drawdowns in your account are some of the important factors that should be assessed. I can help guide you in choosing a model, but the decision is ultimately yours alone.

The investing public in general is guilty of chasing returns. They always invest in last year’s winners, expecting a continuation. I might caution you against such behavior.

Steve



Feel free to call any time you need some input on Model Portfolio selection and suitability.