A high rate of return with no risk of loss is what most of us want.  But we all know instinctively that it just isn’t possible.  Modern Portfolio Theory, backed up by decades of scientific research, verifies that our instincts are correct.  Higher average rates of return go hand-in-hand with greater risk of loss.  Put simply, if you want a higher average rate of return, you must be willing to accept a greater risk of loss. 

Given this simple but important truth, the first principle of KAM’s approach to managing your portfolio is to maximize your average rate of return, given the risk of loss you are willing and able to accept.  But as we explain in our Investment Philosophy, not all risk investors take on is necessarily compensated by a higher expected rate of return.  Consequently, we manage your portfolio to ensure that all the risk you do take on is compensated.  That means your portfolio must be well diversified across and within major asset classes.

The second principle of our approach to managing your portfolio is to minimize your cost of investing.  Unless you manage your own investment portfolio, you must pay someone to do it for you.  Yet, the simple truth is that many investors pay a lot more than they have to for competent, professional portfolio management services.  The industry average is from one and a half percent to two percent per year (1.5% - 2.0% per year) of the value of assets under management.  KAM’s maximum portfolio management fee is half that. 

KAM’s portfolio management service includes:

• Working with you to understand your return objective and your tolerance for risk
  
  
• Creation of your personal Investment Policy Statement
  
  
• Selection of particular financial securities for your portfolio
  
  
• Placement of buy and sell trades to establish and maintain your investment portfolio
  
  
• Regular monitoring and rebalancing of your investment portfolio

Ideally, we will manage your portfolio based on the blueprint of your personal financial plan, developed by KAM, or perhaps by another professional financial planner.  But even if you do not yet have a comprehensive financial plan, we will work with you to create a personal Investment Policy Statement to guide how we manage your portfolio.  Accordingly, our role in managing your investment portfolio is to

• Help you identify and understand your financial goals;
  
  
• Help you understand your individual willingness and ability to accept compensated risk, while avoiding exposure to uncompensated risk;
  
  
• Match you to a broadly diversified portfolios of assets that minimizes costs of investing and maximizes your after-tax, after-cost, long-run average rate of return, given your level of risk tolerance;
  
  
• Measure your portfolio’s performance regularly and assess continuing progress toward your financial goals;
  
  
• Rebalance your portfolios as needed and re-evaluate your portfolio for possibly changing financial goals and possibly changing willingness and ability to bear risk;
  
  
• Help you understand emerging global economic and political forces, so you may peacefully weather the inevitable challenges of market volatility and bear markets.

KAM does not recommend or employ active portfolio management strategies.  Active investment strategies tend to reduce investors’ average long-term rate of return and increase costs of investing. Instead, we focus on asset allocation, which is the determination of how much of your portfolio will be invested in the major asset classes (stocks, bonds, real estate and cash).  

Scientific studies have shown over and again that the asset allocation decision explains more than 90% of the variation in rates of return across different portfolios.  Selection of particular securities, market timing, and random luck account for just 10% of the rate of return portfolios earn on average. That’s why we don't try to guess when to be in or out of the market (market timing) or try pick the next hot stock or mutual fund (stock picking or fund picking).
 
We take a scientific approach to managing your portfolio.  We trust the scientific evidence.  Making the best asset allocation decision, given your risk-return objectives, gives you the greatest chance of achieving your financial goals.  That’s our goal.