Your Asset Growth

One of our most important jobs in managing your money is asset allocation.  It's the process we use to determine the mix of stocks, bonds, commodities, and cash equivalents for your account, and how we change this mix as the market's economic and political factors change.  Making correct judgments about the future course of events affecting these factors will dampen losses in down markets and add to growth in up markets.

To illustrate:  you would have avoided major losses if you had reduced the percentage of your portfolio allocated to stocks before the stock market collapse of 2000-2002 or substituted cash equivalents for bonds before the bond market plunged during the 1978-1980 period.

We make these changes evolutionary as changes occur in market valuations.  We are not market timers.  Making frequent or drastic shift in asset allocation seldom produces meaningful results.

As a guide to making these changes, we monitor the difference in the yield spread between stocks and bonds based on various valuation models.  Stocks usually do better than bonds when the earnings yield on stocks is higher than long-term bond yields.

When bonds are favored by the yield spread, we would expect a market in which cash equivalents will outperform stocks.  Depending on our expectation of duration of this condition, we will shift stock accounts toward a higher concentration in quality stocks yielding higher than market dividends and cash equivalents.  In balanced accounts, we will follow a similar policy, shifting emphasis toward high-yielding stocks, bonds, and cash equivalents.