asset allocation

What Is Tactical Allocation and Why Would I Use It?

The Center Contributed by: Center Investment Department

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You’re probably familiar with strategic investing, picking the amounts of stocks, bonds, and cash that create the foundation of your portfolio. But you may also want to consider another layer of portfolio management.

Investors who overweight or underweight asset classes as perceived market opportunities arise are implementing a tactical allocation.

Typically, a tactical allocation overlays a strategic allocation to help reduce risk, increase returns, or both.

While we believe that the relationship of valuation between markets over long periods will be efficient and will correspond to fundamentals, we also know that over shorter periods, some markets may become overvalued and other asset classes will become undervalued. It makes sense at those times to use a tactical allocation strategy. When executed correctly, a somewhat modified asset allocation may offer better returns and less risk.[1]

A tactical asset allocation strategy can be either flexible or systematic.

With a flexible approach, an investor modifies his or her portfolio based on valuations of different markets or sectors (i.e. stock vs. bond markets). Systemic strategies are less discretionary and more model-based methods of uncovering market anomalies. Examples include trend following or relative strength models.

With a tactical allocation, keep in mind less can be more. Successful execution of these methods requires knowledge, discipline, and dedication. The Center utilizes tactical asset allocation decisions to supplement our strategic allocation when we identify a compelling opportunity. Our Investment Committee arrives at these decisions based on many factors considered during our monthly meetings.

Want to learn more? Reach out to your financial planner or a member of the Investment Department team to learn how The Center uses tactical allocation to manage your portfolio.


[1] All investing involves risk, and there is no assurance that this or any strategy will be profitable nor protect against loss.

Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to

Job Transition and Your Investments

The Center Contributed by: Center Investment Department

We at The Center know that people can be overwhelmed with difficult decisions, especially during stressful life events such as job loss or change.

Job Loss, Job Transition and Your Investments

GM recently announced plant closings and layoffs across the country, which will affect thousands of workers. This hits close to home for those of us in the Motor City and reminds us to look at your investment portfolio, ensure proper allocations, and ask these questions:

Am I close to retirement?

It may be time to scale back your portfolio’s risk. If you are invested within a target date retirement fund, this may already be happening for you.

How long before I have to use this money?

With funds you won't need for more than 5-10 years, you may want to ensure you are taking enough risk to help meet your goals. If you are invested within a target date retirement fund, this may already be happening for you.

What is my ability to take risk?

You may be able to take on more risk if you don't depend entirely on your portfolio. In this case, a target date fund may not be appropriate.

Do I get uneasy or worried when my portfolio drops by a certain percentage and feel the need to take action?

If this affects your decision making, even under normal circumstances, guidance from an advisor during a time of change may help alleviate additional stress.

What Can I do?

Review the investments in your account and your beneficiaries. We often neglect our 401(k) accounts in times of change.

Maintain a diversified portfolio to help stay on track for your retirement goals. Some plans offer an overwhelming number of choices, while other plan offerings seem insufficient to diversify a portfolio. Your advisor can help with your comprehensive investment strategy, especially during challenging times.

When you’ve spread assets among multiple financial institutions, maintaining an effective investment strategy – one that accurately reflects your goals, timing, and risk tolerance – may become difficult. Consolidate, and your financial professional can help ensure these assets are part of an overall allocation strategy that reflects your current financial situation and long-term retirement goals.

For more information on consolidating retirement accounts, read “Simplifying Your Retirement Plans.”


Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice.

Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.

Is the Diversified Portfolio Back?

Robert Ingram Contributed by: Robert Ingram

Is the diversified portfolio back?

(Repurpose of the 2014 blog: ‘Why I Didn’t Like My Diversified Portfolio’)

As our team finished 2018 and began reviewing the 2019 investment landscape, I couldn’t help but to think of a Money Centered blog written by our Managing Partner, Tim Wyman. As Tim shared:

“I was reminded of the power of headlines recently as I was reviewing my personal financial planning; reflecting on the progress I have made toward goals such as retirement, estate, tax, life insurance, and investments. And, after reviewing my personal 401k plan, and witnessing single digit growth, my immediate reaction was probably similar to many other investors that utilize a prudent asset allocation strategy (40% fixed income and 60% equities). I’d be less than candid if I didn’t share that my immediate thought was, “I dislike my diversified portfolio”.

The headlines suggest it should have been a better year. However, knowing that the substance is below the headlines, and 140 characters can’t convey the whole story, my diversified portfolio performed just as it is supposed to in 20xx.”

This may have been a familiar thought throughout 2018. Interestingly though, Tim’s blog post was actually from 2015. He was describing 2014.

THE FINANCIAL HEADLINES – Same Old, Same Old?

The financial news about investment markets today still focuses primarily on three major market indices: the DJIA, the S&P 500, and the NASDAQ. All three are measures for large company stocks in the United States; they provide no relevance for other assets in a diversified portfolio, such as international stocks, small and medium size stocks, and bonds of all types. As in 2014, the large U.S. stock indices were at or near all-time highs throughout much of 2018. Also in that year, many other major asset classes gained no ground or were even negative for the year. These included core intermediate bonds, high yield junk bonds, small cap stocks, commodities, international stocks, and emerging markets.

Looking Beyond the Headlines

Here at The Center, our team continues to apply a variety of resources in developing our economic outlook and asset allocation strategies. We take into account research from well-respected firms such as Russell Investments, J.P.Morgan Asset Management, and Raymond James. Review the “Asset Class Returns” graphic below, which shows how a variety of asset classes have performed since 2003.

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This chart shows the historical performance of different asset classes through November of 2018, as well as an asset allocation portfolio (35% fixed and 65% diversified equities). The asset allocation portfolio incorporates the various asset classes shown in the chart.

If you “see” a pattern in asset class returns over time, please look again. There is no determinable pattern. Because asset class returns are cyclical, it’s difficult to predict which asset class will outperform in any given year. A portfolio with a mix of asset classes, on average, should smooth the ride by lowering risks that any one asset class presents over a full market and cycle. If there is any pattern to see, it would be that a diversified portfolio should provide a less volatile investment experience than any single asset class. A diversified portfolio is unlikely to be worse than the lowest performing asset class in any given year. And on the flip side, it is unlikely to be better than the best performing asset class. Just what you would expect!

STAYING FOCUSED & DISCIPLINED

As during other times when we have experienced strong U.S. stock markets and periods of accelerated market volatility, some folks may be willing to abandon discipline because of increased greed or increased fear. As important as it is to not panic out of an asset class after a large decline, it remains equally important to not panic into an asset class. In the case of the S&P 500’s outperformance of many other asset classes, for example, many have wondered why they should invest in anything else. That’s an understandable question. If you find yourself in that position, you might consider the following:

  • As in the five years leading up to 2015, the S&P 500 Index (even with the recent pullback in stock prices) has had tremendous performance over the last five years. However, it’s difficult to predict which asset class will outperform from year to year. A portfolio with a mix of asset classes, on average, should smooth the ride by lowering risk over a full market cycle.

  • Fundamentally, prices of U.S. companies relative to their expected earnings are hovering around the long-term average. International equities, particularly the emerging markets, are still well below their normal estimates and may have con­siderable room for improvement. This point was particularly relevant in 2018 and continues to be as we begin 2019.

  • Through 2018, U.S. large caps, as defined by the S&P 500 Index, have outperformed international equities (MSCI EAFE) in six of the last eight years. The last time the S&P outperformed for a significant time, 1996-2001, the MSCI outperformed in the subsequent six years.

  • What’s the potential impact on a portfolio concentrated in a particular asset class, if that asset class experiences a period of loss? Remember, an investment that experienced a loss requires an even greater percentage return to get back to its original value. For example, an investment worth $100,000 that loses 50% (down to $50,000) would actually require a 100% return from $50,000 to get back to $100,000.

MANAGING RISK

Benjamin Graham, known as the “father of value investing,” dedicated much of his book, The Intelligent Investor, to risk. In one of his many timeless quotes, he says, “The essence of investment management is the management of risks, not the management of returns.” This statement may seem counterintuitive to many investors. Rather than raising an alarm, risk may provide a healthy dose of reality in all investment environments. That’s important in how we meet financial goals. Diversification is about avoiding the big setbacks along the way. It doesn’t protect against losses – it helps manage risk.

Often, during times of more volatile financial markets like those we have experienced during the last couple of months, the benefits of diversification become apparent. If you have felt the way Tim did back in 2015 about your portfolio, we hope that after review and reflection, you might also change your perspective from “I dislike my diversified portfolio” to “My diversified portfolio – just what I would expect.”

As always, if you’d like to schedule some time to review anything contained in this writing, or your personal circumstances, please let me know. Lastly, our investment committee has been hard at work for several weeks and will be sharing 2019 comments in the near future. Make it a great 2019!

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®


Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI is an index of stocks compiled by Morgan Stanley Capital International. The index consists of more than 1,000 companies in 22 developed markets. Investments can not be made directly in an index.

New Year Financial To-Dos Help Keep You on Track

Kali Hassinger Contributed by: Kali Hassinger, CFP®

As we settle into 2019, the fresh calendar year provides an ideal opportunity to make plans and adjustments for your future. Instead of setting lofty resolutions without a game plan in mind, might I suggest that you consider our New Year Financial Checklist? Completing this list of actionable, attainable goals will help you avoid the disappointment of forgotten resolutions in February, and you’ll feel the satisfaction of actually accomplishing something really important!

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New Year Financial Checklist

  • Measure your progress by reviewing your net worth as compared to one year ago. Even when markets are down, it's important to evaluate your net worth annually. Did your savings still move you forward? If you're slightly down from last year, was spending a factor? There is no better way to evaluate than by taking a look at the numbers!

  • Speaking of spending and numbers, review your cash flow! How much came in last year and how much went out? Ideally, we want more income than spending.

  • Now, let's focus on the dreaded budget. Sure, budgeting can be a grind, so call it a “spending plan”. Do you have any significant expenses coming up this year? Make sure you're prepared and have enough saved.

  • Be sure you review and update beneficiaries on IRAs, 401(k)s, 403(b)s, life insurance, etc. You'd be surprised at how many people don't have beneficiaries listed on retirement accounts (or have forgotten to remove their ex-spouse)!

  • Revisit your portfolio's asset allocation. Make sure your investments and risk are still aligned with your stage in life, your goals, and your comfort level. I'm not at all suggesting that you make changes based on market headlines. Just be sure that the retirement or investment account you opened 20 years ago is still working for you.

  • Review your Social Security Statement. If you're not yet retired, you will need to go online to review your estimated benefit. Social Security is one of the most critical pieces of your retirement, so make sure your income record is accurate.

Of course, this list isn't exhaustive. The final step to ensure your financial wellbeing is a review with your advisor. Even if you don't work with a financial planner, at a minimum set aside time on your own, with your spouse or a trusted friend, to plan on improving your financial health. Do it even if you only get to the gym the first few weeks of January!

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

Implementing Your Asset Allocation

The Center Contributed by: Center Investment Department

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At Center for Financial Planning, Inc.®, one of our core investment beliefs revolves around utilizing a strategic asset allocation. We believe there is an appropriate mix of assets that can help investors meet their goals based on well-established and enduring asset classes. This can vary over time depending on your objectives and evolving markets. Finding the right combination of these asset classes and allocation to each plays a pivotal role in managing risk and aiding in ensuring stabilizing returns. In previous blog posts, we’ve discussed the purpose of asset allocation and how to determine the proper asset allocation.  Now let us wrap up this subject with a hypothetical example of the implementation.

Below is a chart of a financial plan overhaul.  You can see there is quite a difference between the current allocation and a recommended allocation.  The current allocation (in blue) is overweight US Large Cap stocks and International Large Cap stocks while underweight the bond asset categories that we define as Core Fixed Income and Strategic Income.  The financial plan takes into consideration any outside accounts like 401k’s, insurance, and/or annuity products to truly understand an entire investment portfolio and determine a suitable asset mix. This helps keep a client within their volatility comfort range as well as on track to reach their return expectations over the long haul.

Source: Morningstar

Source: Morningstar

The recommendation involves selling some of the positions that fall within the overweight asset classes while adding to the underweight bond asset classes.  The end result should be a portfolio with less risk which can be important leading into those early years of retirement if returns had been excellent in recent years it would be important to have a careful eye toward taxes and work with a CPA to construct a tax efficient strategy to divest some of the risk. 

If you are unsure how your asset allocation stacks up, seek out a financial planner so they can assist you in developing an appropriate strategy tailored to your unique needs.


These asset allocations are presented only as examples and are not intended as investment advice. Actual investor results will vary. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Although derived from information which we believe to be reliable, we cannot guarantee the completeness or accuracy of the information above. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investments mentioned may not be suitable for all investors. Any opinions are those of Angela Palacios and not necessarily those of RJFS or Raymond James. Investing involves risk and asset allocation and diversification does not ensure a profit or protect against a loss. 1. Core Fixed Income includes: U.S. Government bonds and high quality corporates 2. Strategic Income includes: Non U.S. bonds, TIPS, high yield corporates and other bonds not in core fixed. 3. Strategic Equity includes: REITS, hedging strategies, commodities, managed futures etc. Large cap (sometimes "big cap") refers to a company with a market capitalization value of more than $10 billion. Large cap is a shortened version of the term "large market capitalization. Smaller mid caps, which are defined as those that fall below a certain market-cap breakpoint, and "small plus smaller mid caps", which include both companies considered small-cap and the smaller mid-cap companies. Mid caps are typically defined as companies with market caps that are between $2 billion and $10 billion. Mid-cap stocks tend to be riskier than large-cap stocks but less risky than small-cap stocks. Small caps are typically defined as companies with market caps that are less than $2 billion. Many small caps are young companies with significant growth potential. However, the risk of failure is greater with small-cap stocks than with large-cap and mid-cap stocks.