What We Do Investment Management

Institutional-Style Investment Management for Your Portfolio

In order to implement your financial plan to fulfill your goals, you want to manage your investments in a sound manner with an eye on the long term. RightPath™ Investments helps you do exactly that. By following the steps outlined below, we generate a written Investment Policy Statement (IPS) that serves as the principle roadmap for you to make sound, on-going decisions regarding the management of your portfolio.

Building a Strong Foundation
Modern portfolio theory maintains that successful investment management depends upon the following principles that aim to control risk and minimize expenses while maximizing a target return over relatively long time periods, for example five years or even thirty years. We believe the application of these principles accounts for the majority of success—or failure—of your financial plan. By focusing most of our efforts and, therefore, your assets on these principles, we create a strong foundation for your IPS.

• Asset Allocation
  Some studies suggest that the single factor that most affects a portfolio's return is asset allocation—and we agree. We use a strategic asset allocation approach, which takes into account your tolerance for market risks, your goals and when you want to achieve them. First, we determine how much of your portfolio should be in equities or stocks and how much should be in fixed income instruments or bonds. As you can see by the chart to the right, the potential for return tends to increase with a greater percentage of stocks—but so does the potential for risk. We help you determine where you are most comfortable on this graph: enough return to meet your goals but not so much risk that you can't sleep at night.

• Diversification
  The principle of diversification is really an extension of asset allocation. Broad diversification allows the investor to benefit when different types of investments do well—and acts as a buffer when some investments categories perform poorly. After identifying your stocks-to-bonds ratio, we will further divide your assets in a very specific, thoughtful manner.
  
  • First, include both U.S. and international investments.
  • Second, ensure that both domestic and global investments each contain companies of differing sizes, for example "large cap" and "small cap" stocks.
  • Third, divide differently sized holdings (e.g., "large cap) into different styles. The main styles are "growth" and "value."

  Many investors buy a variety of mutual funds or a wide array of stocks and feel they are properly diversified. But what sort of diversification do those holdings really represent? For example, a close inspection may reveal that the bulk of those investments are in large-cap U.S. holdings with a growth style. That means when large-cap U.S. growth stocks perform well, so will that investor's portfolio; when that category performs poorly, so will that particular portfolio. Asset allocation that includes broader diversification helps to buffer against such risks.

• Controlling Risk
  So, strategic asset allocation that involves deep diversification inherently reduces risk, starting with the inclusion of an appropriate percentage—for your needs—of fixed income instruments. Of course, these investments must also be properly diversified to buffer against the risk of rising interest rates, for example by including appropriate percentages of short to intermediate maturities.
  
  It is also important to realize that, ultimately, your risk depends upon the integrity of the people handling your investments. That not only includes your financial adviser or investment manager—like RightPath—but also the account managers where your investments reside. Your investment is only as good as our integrity, the account managers' integrity, and so on. Broad diversification and diligent monitoring help to reduce the risk that relying upon that integrity may entail.

• Minimizing Expenses
  The embedded costs of investing in a particular vehicle represent another form of risk. In fact, controlling those costs is considered by many to be the next most important factor in a portfolio's performance after asset allocation. These costs can arise because of layers of administration, active trading, tax costs and other factors. To help minimize the impact of these expenses, we typically aim to place the bulk of your portfolio with managers who take care to keep expenses under control. That can be in indexed funds, for example, which often have lower expenses because they are not actively traded. Similarly, tax-managed funds save on tax-related costs. These approaches, by reducing your investment expenses, can actually permit you to have a less aggressive portfolio while still targeting the same return as more expensive vehicles might produce.

• Rebalancing
  Based on the principles outlined above, your IPS will specify that your portfolio should include certain percentages of different holdings. For example, you might need 20% of large-cap U.S. value stocks and 5% of small-cap international growth stocks. Over time, as these two categories perform differently relative to each other, we will find that they make up different percentages of your portfolio—percentages that are not specified in your IPS. In order to "get back in balance," excesses on one category of investment will be sold off and under-represented categories will be purchased. This process is called rebalancing and should be conducted regularly to reduce the risk of drifting away from your target asset allocation. Of course, if your needs change, we may need to change that allocation accordingly. Those changes are handled as part of your financial planning review rather than as part of rebalancing.

Supplementing to Meet Your Unique Needs or Interests
Once we have created a coherent asset allocation for the bulk of your investments, we will address any additional needs that may not have been addressed. For example, a more active fund with low expenses or a demonstrably better performance may be included. Similarly, if you have an interest in a particular industry or issue, we may recommend funds or a specialized manager for a small portion of your portfolio that emphasize that interest. These investments are considered supplemental to your primary assets that make up the foundation of your IPS.

Implementing and Monitoring Your Investment Options
Once we have identified your primary asset allocation and any supplemental investment needs to fulfill your IPS, RightPath™ Investments gets down to the business of managing your investment process. With you, we will determine the best way for us to deliver those investments. That may involve customized selection of investments to fulfill your IPS; we primarily use the Ameritrade Adviser Services custody platform when engaged in this manner.

Among the hundreds of mutual fund families available to investors, RightPath is privileged to be able to offer to its clients the funds of Dimensional Fund Advisors. Dimensional is a premier provider of low-cost, structured, passive portfolios among a wide variety of asset classes. These portfolios provide all of the benefits of indexing and, through careful engineering, frequently more benefits. Dimensional Funds are available only to the clients of a select group of fee-only advisors. To learn more about Dimensional Fund Advisors visit their website at www.dfaus.com.

We may also identify specific third-party programs that particularly suit your needs. For example, clients who are interested in values-based investing may be well suited to some of the First Affirmative Financial Network, LLC programs that RightPath can coordinate as a Professional Member of the Network. Other private managed account programs are available, as well. Fees for these programs are in addition to RightPath's fees and will be fully disclosed and discussed before such programs are included.

In some cases, a combination of such services will be most appropriate. Custom selection of funds, positions in particular programs and selection of individual stocks and bonds can be combined to fit a particular client's needs.