Asset Allocation

Darin Bemis, CFA
Portfolio Manager and Analyst
“We work closely with clients in developing an appropriate asset allocation target that balances the need to take risk with the ability to withstand the ups and downs of the market.”

Lederer & Associates believes asset allocation is one of the most important elements in the management of portfolios. The purpose of asset allocation is to divide a portfolio among different types of investments for diversification and to optimize the long-term returns pursuant to the level of risk tolerance.

Stocks, bonds, and cash comprise the three major classes of securities. These investments generally work well together because they do not perform in the same manner. While we manage portfolios that range from all equity to all fixed income, most of our accounts are balanced to varying degrees of stocks and bonds.

Based on client goals and objectives, we establish a target mix of stocks, bonds, and cash. We like to think in terms of layering portfolios. Cash serves as the foundation. It is the safest and most liquid of all investments. However, the yields are typically lower than those on bonds and many dividend-paying stocks. At the opposite end, real estate and interests in privately held businesses are the most difficult to convert to cash in a timely manner. Most publicly traded stocks and bonds are highly marketable and offer prospects for growth and/or income. As such, these securities should form the core of any serious investment portfolio.

We rebalance portfolios periodically to maintain the proper mix of assets. Shifting money from an asset class that has performed well in favor of an asset class that has not performed as well is a disciplined method of buying low and selling high. Adhering to this investment tenet sometimes requires a contrarian point of view as it is human nature to want to buy what has worked and sell what has not worked. Although buying what’s popular may work in the short run, this type of momentum investing rarely leads to success over the long term.