Using technical and fundamental analysis, we attempt to identify the current investment cycle and evaluate market risk. This process drives McDaniel Knutson's overall asset allocation decisions. We then utilize a risk-adjusted trend analysis approach to identify and invest in the strongest sectors, asset classes, and specific investment funds.
During periods of generally rising markets, known as Secular Bull Markets, investors can generally buy and hold with a high expectation of making money. The opposite holds true during Secular Bear Markets. In the past 121 years, there have been five bull markets and four bear markets. A close examination of the chart shows that the stock market experiences huge swings during bear markets. These periods require a more active investment approach. Experience and academic research haves shown us the trick to accumulating wealth is not making a lot of money when times are good, but in not losing it all when the markets turn south. You don’t have to be perfect in the up years if you can avoid getting hammered in the down years. You can see there are several instances in the past century in which the U.S. market has made no net gains for as long as 25 years.
While most investment advisors speak in investment products, MKFP speaks in models. The first step is to determine your general tolerance for risk. Our experience tells us that most clients don’t know if product XYZ is right or wrong for them. However, they know if they are conservative, moderate, or aggressive. Our first step is to take what the client knows about themselves and then apply a mix of models to achieve their overall allocation.
Conservative Income seeks to provide current income and preservation of capital in the long term. Investors should be willing to accept a small level of principal volatility. Investments are primarily in fixed income securities.
Moderately Conservative seeks to provide income and some growth in the long term. Investors should be willing to accept a slightly higher level of principal volatility than purely conservative investors. The portfolio will be invested, on average, approximately 30% equities, 70% fixed income securities.
Moderate seeks long-term growth of capital and current income. Investors in pursuit of this objective should be willing to accept a moderate degree of principal volatility. The investment allocation will be up to approximately 60% equities and 40% fixed income securities.
Moderately Aggressive seeks long-term growth of capital with current income as a secondary consideration. Investors should be willing to accept a moderate degree of principal volatility. The portfolio will be approximately 80% equities, 20% fixed income securities.
Aggressive seeks long-term growth of capital with minimal consideration of income. Investors should be willing to accept a higher level of portfolio volatility. Investments are primarily in equities.
Individual Stock or Bonds
Exchange Traded Funds (ETFs)
Exchange Traded Notes (ETNs)
Unit Investment Trusts (UITs)
Closed-End Funds (CEFs)
Real Estate Investment Trusts (REITs)
We utilize a variety of strategies to tailor the portfolio to specific client objectives. The precise mix of strategies depends upon the client. We also identify strategies as buy and hold, tactical, or dynamic as described below:
Buy and Hold generally means we buy the security and hold on to it for longer time periods. We continue to monitor and will replace it if stops meeting our criteria.
Tactical means that we always hold a certain amount in various securities, but will vary the percentage. For example, the allocation to stocks may never go to zero but may fluctuate between 30% and 60% depending on market conditions.
Dynamic means we rotate between different types of securities depending upon trend or risk.
Fixed Income invests primarily in bonds or institutional real estate. This is a buy and hold strategy that can be customized for taxable or tax-deferred accounts.
Preferred Stock is a buy and hold strategy which invests in preferred (as opposed to common) stock. Preferred stock typically has lower risk and pays a higher dividend than common stock. Preferred stocks are often thinly traded, making it appropriate for a buy and hold portion of a portfolio.
Dynamic Bond rotates between all types of bonds (government, corporate, foreign, and municipal) and other conservative investments like institutional real estate or preferred stock funds. Positions are determined primarily upon the trend. The objective is to preserve principal while earning a rate of return greater than the Barclays Aggregate Bond Index. Returns are taxable income and mostly short-term gains, making it best suited for tax-sheltered accounts.
All-Star Moderate invests in a portfolio of balanced, moderate risk funds with positive reward/risk ratios. This is a tactical strategy utilizing the expertise of fund managers with diverse approaches to managing risk. It is suitable for both taxable and tax-exempt accounts.
Dividend Income invests in securities which pay above average income and which display moderate levels of risk. The objective is income, first, but also some degree of capital appreciation. This is a buy and hold approach, though stop-losses may be used with certain securities. Some dividends may be qualified but the strategy works best in tax-deferred and tax-free accounts. Issuers typically declare regular dividends, but they are not guaranteed. ($30,000 minimum)
All-Star Growth invests in a diversified portfolio of growth funds, each of which has a positive reward/risk ratio. This is a buy and hold portfolio. The objective is to match market returns during bull markets, but lose less than the market during bear markets. It is appropriate for accounts under $25,000.
Core Growth invests in a diversified portfolio of Exchange Traded Funds (ETFs) to obtain broad exposure to primary US and global markets, including equities, real estate and natural resources. This is a buy and hold portfolio and subject to substantial market swings. It is tax sensitive, making it a good option for taxable accounts. ($25,000 minimum)
Opportunity Growth invests in about ten securities, primarily stocks, but also Exchange Traded Funds (ETFs) which we believe have exceptional growth potential in the short term. This is primarily a buy and hold portfolio, with limited uses of stop-loss orders. Securities are chosen based upon their fundamental strength. This strategy is aggressive because fewer positions are held and diversification opportunities are limited. Because of the possibility of large realized capital gains, it is most appropriate in tax-deferred and tax-free accounts. ($30,000 minimum)
Dynamic Growth invests in a relatively small number of sectors of the market showing strength relative to the S&P 500. It can invest in any sector including bonds or cash. Due to the possibility of large realized capital gains, it is most appropriate in tax-deferred and tax-free accounts. ($25,000 minimum)
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. A diversified portfolio does not assure a profit or protect against loss in a declining market. Asset allocation, which is driven by complex mathematical models, cannot eliminate the risk of fluctuating prices and uncertain returns. Asset allocation should not be confused with the much simpler concept of diversification. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Mutual Funds and Exchange-traded funds are sold only by prospectus. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained directly from the company or from your financial professional. The prospectus should be read carefully before investing or sending money.