Investment Philosophy Our investment development process begins with a complete evaluation of the client's financial situation. This includes the client's goals and objectives for the portfolio assets, tolerance for risk, time horizon, age, tax considerations for the portfolio, and any unique circumstances. We will also look at specific major financial goals that must be incorporated into the investment plan, such as retirement, children's education, a major purchase, a required distribution, or inheritance. We make a special effort to work with the client to explain the different investment classes and the rationale behind our portfolio development process. It is critical to the portfolio's ultimate success that the client understand and embrace the investment strategy we have developed. Because the majority of our clients have unique and complex financial situations, we develop custom portfolios reflective of each client's needs and goals by establishing and managing their asset allocation. Asset allocation is the investment strategy utilized by nearly every large pension and endowment fund in the United States. Effective and appropriate asset allocation is a major factor in reducing portfolio volatility and involves directing portfolio assets to a variety of different investment types, or "asset classes." We build and balance our client's portfolio among all asset classes including: stocks, bonds, cash or cash equivalents, and real estate. For more rigorous allocation models we break down asset classes in numerous ways. For example, stocks can be divided into domestic and international. These can then be divided into large, medium and small-sized companies. Finally, you can categorize stocks by the investment management style that they fall under, either growth or value. Fixed-income investments can also be divided into domestic and international, then into government and corporate, taxable and tax-exempt, and further by duration: short, intermediate, or long-term. In general, asset classes have different levels of risk and return. Over time, these different levels of risk and return tend to behave independently of each other. Frequently, this independent behavior causes the risk of different asset classes to partially offset each other, and provide a decrease in the volatility of the overall portfolio. This asset allocation is determined by the particular characteristics of the client, including risk tolerance, age, income, and other assets. Within each of the selected asset classes, we then select above average mutual funds for our clients investment. Falconer primarily uses mutual funds when selecting investments to meet a particular asset class need. We manage portfolios on the "macro" level, setting the strategic asset allocation targets and making tactical portfolio allocation decisions. We add value by managing and controlling the portfolio volatility. In addition, we facilitate portfolio distributions and minimize portfolio taxes when these skills are required. Falconer will utilize individual stocks and bonds in client portfolios when the situation warrants. We believe that mutual funds offer attractive characteristics with the management of the portfolio on the "micro" level, namely, professional money management and research of individual securities at a reasonable cost. Furthermore, it is virtually impossible to obtain the diversification available through a portfolio of funds with an individual stock portfolio. We perform extensive analysis of mutual funds and select funds that most appropriately meet the objectives of a particular portion of the investment portfolio. We are particularly concerned about the ethics of the fund companies and fund managers that we select. It is imperative that the funds we select act as stewards for the shareholders that invest in their funds, and indeed, place the interests of shareholders above their own. After that, we compare and judge the remaining mutual funds against their peers. We use criteria such as performance relative to peers, cost, tax efficiency (when relevant), money manager experience, fund family, and correlation to other funds in the portfolio. We continually monitor the funds that we recommend, others that we are considering, and the mutual fund industry in general for changes that would affect current clients. We will make changes when we believe it to be in the best interests of our clients. However, consistent with what is stated above, poor performance alone is not sufficient grounds for selling a fund. We expect that all funds will experience poor performance from time to time as the investments that it focuses on go in and out of favor. It is impossible to predict with any consistency and accuracy these cycles, and therefore, we will do very little to try to "time" the market. We always take special note of costs. We exclusively recommend no-load mutual funds. In addition, we make costs an important consideration when selecting mutual funds for a portfolio. Funds with a higher than average expense ratio must clear a much higher barrier to be selected for inclusion into a client portfolio. This is because while past performance is no predictor of future performance, one can predict with high certainty the cost structure of a particular mutual fund (decreases in fund costs are, unfortunately, a rare event). Costs are of particular importance with fixed-income funds, due to their typically lower rates of return (a given expense ratio will consume a greater percentage of the return when the return is smaller). For more information on our investment philosophy, policy, or procedures please contact us directly. Return to Family Wealth Management