Allocation and execution

Once all the relevant planning parameters have been discussed, we can set an asset mix according to your risk tolerance. The asset mix decision is without question the single most important decision we will make.

Here are some of the rules for each asset class that I have learned over more than years in the business:

Bonds

I typically have an opinion around the direction of the central bankers based on several factors such as money supply, inflation, capacity utilization in the economy, change in Gross Domestic Product, and other factors. A bond portfolio should have a variety of credit quality and maturity, with a bias to the expected direction of long interest rate movement.

Equities

Over the years, my clients and I have both preferred direct ownership of securities versus managed money platforms. This is because direct ownership affords us better clarity over what we hold, why we hold it and the risk involved. A portfolio should consist of approximately ten to twenty securities in total. More names do not always mean less risk, and too many names can really dilute returns. A portfolio should also represent a variety of industries — primarily domestic.

I try to ensure that equities we buy have:

• A minimum level of liquidity 
• No fundamental flaws in their business model 
• A supportive chart of technical and fundamental numbers 
• A definitive sell target. Generally, I set a 20% stop loss. Typically, when we buy a company it is because we like the technicals and fundamentals. If they erode by 20%, it usually indicates the stock is on its way to a much bigger drop.