Constructing Your Portfolio
After these asset allocation decisions have been made, CIS turns to selecting what it believes to be the most appropriate investment vehicles for implementing the asset allocation strategy for the client.
We build client portfolios employing a Core and Satellite structure. The primary (Core) positions typically provide passively managed exposure to stock, bond and alternative asset class markets.
Indexes, available as mutual funds and ETFs (Exchange Traded Funds), are the primary vehicles used. Additional (Satellite) positions are also made to provide clients with exposure to actively managed strategies where we believe a money manager of a mutual fund or a Separately Managed Account (SMA) has demonstrated potential to outperform over time his or her relevant benchmark index. Where appropriate, CIS may also use structured investment products to help achieve a client’s risk/return objectives.
As an independent, fee-only advisor, CIS benefits its clients by offering them unbiased analysis and a selection of investment vehicles and products. CIS does not make any commission or any other fee from any investments it makes on a client’s behalf.
Expenses of an investment (its expense ratio or management fee) are taken into account when CIS conducts its due diligence in product selection. Passively managed index products used in a client’s Core portfolio allocation already provide the additional benefit of low expenses. When evaluating actively managed investments with similar characteristics, CIS favors the product with lower fees because lower fees mean there is a smaller hurdle to clear to beat a benchmark index.
Tax considerations also play a key role when we are constructing or refining a client’s portfolio. As the old adage says, “It’s not what you earn, it’s what you keep”. Consider mutual funds, which must pass on gains to shareholders. These capital gains and dividend distributions are taxable events for investors who hold their mutual fund shares in taxable portfolios. To help our clients be tax-smart investors we look for opportunities to optimize allocation holdings among their taxable and tax deferred portfolios, thereby helping them keep more of what their investments earn.