For families of significant means, managing exposure to risk, in addition to focusing on growth and income, is one of the keys to preserving wealth across generations. Asset allocation is one of the most important tools in managing risk. For traditional core equity investors, exposure to additional asset classes can increase diversification and dampen volatility. Allocation approaches work best when the returns of asset classes in a portfolio are less correlated so that downturns in the values of one class may be offset by gains in another.
Unfortunately, the correlation between asset classes can change with shifts in the financial markets. In periods of significant market stress, traditional asset classes generally begin to move together. For this reason, it is important for wealth advisors to keep a careful eye on a broad range of asset classes to make sure that each class continues to contribute the expected value to the portfolio. In other words, when it comes to allocation, being in the right place at the right time can make all the difference in performance.
In such times of stress, investors may need to look to less traditional asset classes, such as REITs, commodities, or other alternative investments, to provide more robust diversification and risk management.
Klingenstein Fields Advisors takes a thoughtful approach to asset allocation, carefully monitoring a number of key asset classes and economic indicators. We seek to filter out the temporary “noise” in the marketplace, making strategic adjustments to asset allocation only when risk/return implications are warranted. We also regularly assess the impact of changes in our clients’ situations before making moves in asset allocation.
Our goal is to add value consistently to our clients’ portfolios over time. We take a long-term view, positioning client portfolios to focus on their particular needs for growth and income, while diversifying portfolios prudently to reduce exposure in times of economic and market stress. As always, portfolio diversification starts with a conversation. We welcome the opportunity to help you create an investment plan that is right for your personal circumstances and objectives.