All Weather Portfolios
This investment strategy was formulated in 1987 to serve the needs of individual investors seeking a combination of capital appreciation, current income, and preservation of capital. It is a strategic asset allocation portfolio that contains investments in several investment classes including: large cap equities, mid-cap equities, small cap equities, international equities, precious metals, domestic bonds, international bonds, and money market mutual funds. Allocations to the various asset categories are made using no-load mutual funds and exchange traded index funds (ETFs).
The portfolio is periodically rebalanced back to its target allocations. In addition, portfolio allocations among investment categories are adjusted to take advantage of ongoing trends in the economy and financial markets. For example, during periods of rising interest rates, the allocation to money market funds is increased and the allocation to domestic bonds is shifted to bond funds with very short average maturities. Although the portfolio is periodically altered to conform to unfolding economic and financial market conditions, investments in at least seven investment categories are maintained at all times. Generally, each of the seven investment categories will contain an allocation that ranges from 5% to 25% of portfolio assets.
The use of exchange traded mutual funds offers individual investors several advantages over direct investment in stocks and bonds. First, ETFs are indexed to baskets of securities and thus replicate the financial performance of asset categories, market sectors and specific industry groups. As such, these mutual funds exhibit a high degree of transparency. Second, ETFs have a unique structure that minimizes capital gains distributions that can erode investment returns by the premature payment of income taxes. Finally, ETFs possess annual expense ratios that are significantly less than those of actively managed mutual funds.
The goal of this portfolio is to provide individual investors with modest resources access to a highly diversified portfolio that has the potential to provide long-term average annual returns equal to those of the U.S. stock market while maintaining a level of risk equal to approximately two-thirds that of the equities markets.