- How do you approach allocation decisions within my portfolio?
- Is this an active approach?
- What is the nature of changes to my portfolio?
- Do you provide a range of recommended portfolio allocations?
- What benchmarks do you use to measure performance?
- How does your cost structure measure up to competitors?
- What is the frequency of oversight?
- What tools or models do you use to evaluate and recommend allocations?
How do you approach allocation decisions within my portfolio?
Allocation decisions are based on modern portfolio theory and optimization programs. Optimizations are based on the following estimates for asset classes: investment returns, standard deviations, and correlations. From these estimates we will construct hypothetical, optimal portfolios. Optimization (modern portfolio theory) is used to find the highest expected return for a certain level of volatility (the efficient frontier). It is important to note that optimization is only a tool. Predicting the future with accuracy is impossible. Therefore, the output of optimization is always adjusted based on diversification issues, investment experience, additional in-house research, prudence issues, client characteristics, tactical views and other fiduciary responsibilities.
Harrington Wealth Management professionals are not day traders. We believe in long-term investing. We would be considered passive managers, relative to most active managers in the investment community. As our approach at Harrington Wealth Management is based on academic research, it is both verifiable as well as defensible. We believe that effective, long-term investing is a function of appropriate asset allocation. The "hot" stock tip of the day does not enter into our process. We create highly efficient investment portfolios for your particular level of risk tolerance.
What is the nature of changes to my portfolio?
Your portfolio changes would be a function of a number of factors such as: asset class outlook, market valuations, and economic events. In addition, regular monitoring and evaluation of your portfolio or needs could warrant a change in your portfolio. Proper due diligence, client education and portfolio construction at the outset, however, minimize the need for subsequent or significant changes to the portfolio.
Do you provide a range of recommended portfolio allocations?
We do not believe it is prudent to provide recommendations to clients until we have a thorough discussion of your Investment Policy Statement. This is critical to the type of allocations we will recommend. Although long-term growth with an annual spending policy may suggest a higher allocation toward equities, we also must address and consider other factors unique to your case. One of the distinctions of our service is that we discuss and evaluate a range of individual factors such as your risk tolerance and portfolio constraints. This is necessary to construct an appropriate investment policy for you.
What benchmarks do you use to measure performance?
The benchmarks we normally use at Harrington Wealth Management are the Wilshire 5000, MSCI EAFE, and the Lehman Brothers Aggregate Bond Index (or Merrill Lynch's Bond Index). We may use value and growth indices as well as a cash benchmark, depending on the nature of your allocation. Allocation benchmarks will be a function of the suggested strategic allocation and the implemented tactical allocation. For example, the recommended portfolio may require a 70% allocation to equities. Our tactical view may bias this allocation toward "hot" stocks. As a result, there would be two comparisons: 1) the value investments compared to the value benchmarks, and 2) the portfolio (with its value bias) compared to the broad equity market (e.g., Wilshire 5000).
How does your cost structure measure up to competitors?
Our total embedded cost structure to Harrington Wealth Management clients is extremely competitive, given that a number of investment costs are involved. We welcome you to compare our rate structure with any other competitor. Please be sure to ask any advisor about these specific costs: investment advisory fee; mutual fund expense ratio; mutual fund sales charges; stock commissions; bond mark-ups; and any other type of fee or sales charge you would incur as a client. Lastly, we do not use mutual funds that have sales charges, either front-end or deferred.
What is the frequency of oversight?
The investment team reviews each client portfolio regularly, at least annually, and more often as economic conditions warrant.
What tools or models do you use to evaluate and recommend allocations?
We use a number of sophisticated tools and models in conducting our investment analysis, including:
- Ibbotson Allocation Software
- Morningstar Workstation
- Standard & Poor's Advisor Insight
- Prism Allocation Software
- Internal quantitative models
