Wealth Creation & Preservation’s portfolio management can be broken down into three distinct levels: asset selection, asset weighting and risk management.

The first level is the selection of the stocks or more precisely; the groups of stocks. We start with the premise that it is virtually impossible to be successful at picking stocks over the long run (such as large cap stocks) versus owning the related passive index (such as the S&P 500 index). After all, in the stock market, each stock investor is competing against tens of thousands of the top school’s MBAs and PhDs all trying to outperform their peers with the same company and economic information. All of the studies that we have looked at come to the same general conclusion: It ranges from any short term out performance is due to luck and it will disappear over time to the probability of finding a stock picking manager that will outperform over time is about one in forty or less than a three percent probability. Based on our personal experience and the academic studies, we have concluded that we will leave stock picking to the optimists and we will use the very low cost, passive Exchange Traded Funds (ETF) to construct our portfolios. These ETFs are basically the indexes that that the stock pickers find so difficult to outperform. That is why ETFs are so popular today.

The next step is determining which of the ETF indexes we want to own for our clients. Just like major institutions such as pension funds and university endowments, we want to have our portfolios invested in all of the major asset classes to achieve maximum portfolio diversification. The reason behind this is that asset class diversification is one of the most effective ways to reduce total portfolio risk (which can be thought of as the up and down price swings - particularly the ones resulting in the portfolio losing money). The premise is that while one asset class such as real estate is losing money, it will be offset by another asset class such as oil and gold that are increasing in value. While in practice it does not always work that neatly, it has historically been very beneficial in smoothing out the price swings within a portfolio.

We then decide how much of each of the investment choices that we want in the portfolio. This is where we use the help of the Noble Prize winning economists and their Modern Portfolio Theory. In a nutshell, this method looks at how each investment choice acts in relation to all the other portfolio choices and it selects mathematically a combination of all the choices that provides the best historical risk adjusted return. That is to say - the highest portfolio return for the least amount of portfolio risk. And that is our main goal: managing portfolio risk to allow our client’s to have the ability to plan for their future.

The final tool that we employ is the individual risk monitoring of every investment component (such as large cap, international or the real estate) within the portfolio. You may have asked yourselves earlier on: Why we would even want to own something such as real estate when it is going down in value. That is a very good question and that is why we have methods to reduce the ownership of asset classes when they are not performing well and restoring the level of ownership when they improve. It is done with the goal of further reducing total portfolio risk.

When we put all of these steps together, we do not believe there is anyone providing a better level of portfolio construction and risk management than Wealth Creation & Preservation. Every portfolio is designed to fit the individual client’s needs and risk profile and the portfolio is constantly monitored to ensure that it stays inline with those goals.

Please contact us today so that we may show you how we can make a real difference for your financial future.