A good friend forwarded me an Op-Ed in the New York Times today. It questions the logic of rewarding bankers with bonuses – those same bankers who decimated the economy by making excessively risky bets. The writer’s contention is that the bankers have little to no downside risk, and so there is no disincentive – only the knowledge that they will be bailed out again.
I agree that there needs to be more accountability within the industry. There has been virtually no legal action taken in the wake of the mortgage crisis and subsequent economic crash. In most cases, the same people who who led us into disaster, are the exact same ones leading now. The bonuses should go away, as should the extreme risk-taking. As the author says, leave the extreme risk to the hedge funds.
This is all the more reason to ask the provocative questions, to not allow the traditional Wall Street firms to dictate your financial future. Move away from the big firms and find a small firm that is aligned with who you are and what you stand for.
I believe in taking a stand for your principles. The Asheville Citizen-Times reported today that the Asheville Chamber of Commerce will not be renewing it’s association with the US Chamber of Commerce. This is a gusty move that should be applauded. The US Chamber has become more and more partisan over the past several years and spends millions of dollars in it’s attempt to influence elections. It has come out as a climate change skeptic, and actively worked against health care reform.
The US Chamber of commerce does not represent the needs and views of the Asheville Chamber or it’s members. Again, I applaud Asheville for taking a stand.
The markets have now officially given back all that they’ve gained over the past year, dropping into negative territory for the past 12 months today. Fear pervades the markets and an attitude of “sell sell sell!” abounds. But that’s not what we’re going to do.
Our portfolios have been rather conservative over the past couple of years – allowing us to ride out the downturn in 2008 and maintain stability ever since. It is time to begin adding more equities (stocks) to our portfolios and take advantage of low valuations. Currently the portfolios have:
- Core Conservative: 26% Equity
- Core Balanced: 36% Equity
- Core Aggressive: 49% Equity
The Mirriam-Webster Dictionary defines prudent as “marked by wisdom or judiciousness.” Further, judiciousness is defined as “having, exercising or characterized by sound judgment.” In a world of uncertainty, when stock markets can rise by three percent in a day and fall by three percent the next day, prudence reigns.
What does being prudent mean to us as investment managers? The simple answer is the old adage that mom used to say: don’t put all your eggs in one basket. But, with so much complexity in the financial markets and so many different instruments available, which baskets do you choose?
We use a company called Litman Gregory to help us answer that question. They do a fantastic job of filtering out the noise coming from Wall Street and Washington. Their philosophy is very similar to ours: capture as much return potential as possible for clients while making sure to limit the potential for loss during downturns.
So, they analyze the different opportunities available, from stocks to bonds, international to domestic, traditional and non-traditional. Using different combinations, they determine the best risk-reward scenarios and plug them into conservative, moderate and aggressive portfolios.
We then use these recommendations to build our socially and environmentally responsible portfolios. Using mutual funds that we have researched based on performance, social & environmental responsibility, an other important criteria, we offer our Core Conservative, Core Balanced and Core Aggressive portfolios.
So, from a prudence perspective, how has this benefitted clients? Year to date (9/12/2011) our Core Balanced Portfolio is down 4.5%. The S&P 500 by comparison is down about 8.6%.
We have a fiduciary duty to act only in our clients’ best interest. Our philosophy states that we are willing to underperform in the short-term to cushion losses and market volatility. This usually results in long-term outperformance of the markets – something that’s important to our clients.