Designing Your Portfolio
Portfolio design happens after information gathering and risk assessment. This is where we incorporate what we’ve learned about you, including your investment timeline, assets, and ability and willingness to shoulder risk. At this point we’re ready to design a portfolio around your singular needs
As mentioned elsewhere on this site, our investment focus is on managing globally diversified stock and bond portfolios, principally through the use of low-cost, tax efficient, passively-managed stock and bond index funds. Client portfolios are generally composed entirely of no-load, no redemption-fee mutual funds, with low fixed trading costs. We generally recommend passively managed index funds offered by Dimensional Fund Advisors (DFA) as core investments.
Portfolio design begins with an all-important decision about the appropriate mix of asset classes. Asset classes include U.S. and foreign stocks, large and small-cap stocks, value and growth stocks, various forms of fixed income securities and bond funds, and cash or cash equivalents. Publicly traded real estate trusts (REITS), gold and commodity mutual funds, or Exchange Trade Funds (ETF) also may be recommended as part of an asset allocation strategy.
Within each asset class, the composition of investments may follow models defined by Cardiff Park or can be customized to suit individual client preferences and specific objectives.
When determining the proper ratio of equities to fixed income, we also incorporate a client’s IRA, 401(k) and other savings accounts into design of the overall investment strategy. Our clients benefit from coordinated management of their accounts as a single portfolio rather than as separate unrelated portfolios. Planning for future rebalancing requirements may influence initial distribution of assets across taxable and tax exempt accounts.
Initial asset allocation also may be influenced by a review of current inflation, interest rates, market valuation and other economic indicators. Generally, however, we do not use tactical asset allocation strategies to manage client portfolios.
All Cardiff Park portfolios are tax aware and based on long-term “buy and hold” investment strategies. Allocations to asset classes with relatively high expected taxable distributions are emphasized in tax exempt accounts. Allocations to asset classes with relatively low expected distributions in taxable accounts can increase the expected rate of return on the entire portfolio. The coordination and management of asset classes across different accounts enables rebalancing of the entire portfolio with lower capital gains.