Investment Personal Preferences
The following strategies can be incorporated into your portfolio without changing the overall stock percentage. They can be used individually, or in combination with other custom strategies resulting in a very personalized investment portfolio.
Some asset classes tend to be more volatile than others. By lowering your exposure to these asset classes, you can theoretically lower your overall risk. This may include increasing exposure to US “Blue Chip” stocks, investment grade bonds, and precious metals.
Funds that offer down-side protection to a certain limit and stock market participation up to a cap. A fund that tracks the S&P 500 may protect against the first 15% of losses yet still allow up to a 10% return over a 1-year time period. Can be used across multiple asset classes.
Due to the constant demand for their products, defensive stocks tend to perform better in a declining market. The three main defensive sectors are Utilities, Consumer Staples, and Health Care. Funds that focus on these sectors can be incorporated into the allocation.
Low-volatility funds try to capture market-like returns but with less downside by screening for less volatile stocks. In theory, a low-volatility fund would lag the market slightly in good times, but somewhat out-perform during a downturn. Over time, you may not get the full returns of the market, but you may experience less volatility.
A covered call fund is a fund that sells call options on investments they already own. They collect premiums on the call options while also participating in the price movement of the underlying investments. The upside of the price movement is capped at a certain level since if the market price exceeds the strike price, the option will be exercised. These funds tend to work better in flat and low-movement markets.
If you are worried about the economy, one of the ways to position yourself a little more defensively would be to increase the credit quality of your bonds. Owning more AAA-rated bonds vs A-rated bonds can decrease your credit risk.
When interest rates rise, bond values decrease. To combat rising rates, we may use several strategies including: more individual bonds vs traditional funds, target maturity bond funds, floating rate bond funds, shorter-term bond funds and increasing cash and CDs.
By increasing your exposure to certain asset classes, you can increase the income from your portfolio. This may include increasing exposure to value stocks, real estate, preferred stock and high yield bonds.
At the basic level, dividend focused funds invest in companies that pay decent dividends. Some are focused on sustainable dividend growth while others invest in riskier, yet higher yielding companies.
A covered call fund is a fund that sells call options on investments they already own. They collect premiums on the call options while also participating in the price movement of the underlying investments. The premiums can provide steady monthly income.
A lot of closed-end funds focus on providing steady higher income to their shareholders. These can be used for US stocks, international stocks, REITs, bonds, and master limited partnerships (MLPs). These funds are often more expensive and riskier than traditional funds.
This would be the opposite of our defensive strategy. Instead of using higher credit quality bonds, we would purposely use lower credit quality bonds because they usually pay higher interest. We can also extend out the maturity dates, as longer-term bonds often pay higher as well.
We don’t recommend a lot of annuities, but a fixed-rate, fixed-term annuity is a simpler product that works similar to a CD, less the FDIC insurance. These annuities often pay higher rates than similar term CDs and bonds but must be held to maturity to avoid surrender fees.
By increasing your exposure to riskier asset classes, you may increase your returns over time. This may include increasing exposure to growth stocks, small-cap stocks, emerging markets and high yield bonds.
Unlike traditional funds which are usually invested around a particular asset class like US Large Value, thematic funds invest in companies based on certain themes like biotech, blockchain, robotics, AI, or alternative energy. Thematic funds usually involve innovative, disruptive, and forward-looking technologies.
This strategy incorporates four well-researched, long-term “tendencies” in the market. Over time, stocks tend to outperform bonds, value tends to outperform growth, small-caps tend to outperform large caps, and companies with higher profitability tend to outperform those with lower profitability.
Basically, the same higher risk / higher return strategy as with Enhanced Yield / Income. We purposely use lower credit quality bonds than normal and potentially longer maturities in hopes of generating a higher return over time.
ESG stands for Environmental, Social and Governance, and is basically an updated way of saying "socially conscience" or “sustainable” investing from 10-15 years ago. ESG investing can be incorporated into most asset classes in a portfolio.
These may range from funds that promote women-empowerment, diversity, and veganism to others that avoid “sin” stocks or promote MAGA / conservative values.
While most of these funds are Christian-based, there are some that are focused more on Jewish values, and even Shariah-compliant investments.
Personal values don’t always have to be about a cause. Maybe you’re feeling sentimental about a stock that you inherited from a loved one. Or maybe you just like owning stock in Amazon, Apple or Disney because you love their brand. We can help you incorporate it into your portfolio.
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