How The Investment Philosophy Help Your Mother. Asset Allocation Decisions

730 Words Oct 5th, 2015 3 Pages
I have been thinking about our conversation regarding the investment philosophy to help your mother. Asset allocation decisions are probably more difficult now than they have ever been in our industry. We deal with many clients in your mother’s situation, where they really don’t need the income and the capital is most likely going to be passed on to the next generation. Finding the proper balance with interest rates near all-time historic lows is not an easy task.
Some of the traditional thoughts about age and asset allocation may not be as relevant in the current environment. As we discussed, fixed income based mutual funds in particular will be negatively impacted when rates eventually start to rise. Having a low duration in the bonds will help somewhat, but its investor behavior that is the biggest problem. When rates rise, conservative owners of bonds funds historically sell. This causes the managers to have to sell bonds at the worst time. If this persists, then managers have to keep unusually high balances of cash to cover redemptions. This situation results in even more reduced performance. This is why I recommend that your mother move out of higher cost mutual funds that are fixed income based.
We also recommended that most, if not all of you mother’s investments be in U.S. based, high quality companies. The general international market has under-performed the US markets over the last five, ten and twenty years. This situation has also continued, last…

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