145 Pine Haven Shores Rd #2212 | Shelburne, VT 05482
'23 Mid-Year Client Letter
Establish Target Risk Profile. This involves setting long-term targets for overall equity and fixed income exposures. The primary drivers of this decision include: risk tolerance, liability profile, and annual income or cash flow needs, among other factors.
Asset Allocation. Within each broad equity and fixed income category, target asset allocations are established. If there is a benchmark in place, targets are generally stated relative to that benchmark. Asset allocation targets are reviewed on an ongoing basis and may be shifted as market opportunities evolve.
Security Selection. For each target allocation, we begin with the full universe of available exchange-traded funds and screen out funds that are either too expensive or too small to fit our criteria.
Portfolio Monitoring. Once established, portfolio exposures are monitored on both an absolute and benchmark-relative basis to ensure that guideline compliance is maintained and that allocations remain within target ranges.
Costs. Controlling costs is paramount. Lower costs have a material long-term impact on performance.
Passive Approach to Security Selection. Based on extensive research, we do not believe active security selection will consistently beat a simple indexing approach after fees.
Diversification and Liquidity. The ETFs we utilize provide access to hundreds of different stocks across a variety of industries, company types, and geographies. We utilize funds that have asset scale and a high level of average daily trading volume to help ensure liquidity during times of volatility and market stress.
At Shelburne Fiduciary Partners, our goal is to identify, monitor, and manage the risks in our clients' portfolios. Calibrating and understanding the drivers of potential downside risk is a critical element of this process. Diversification and liquidity are also significant factors in controlling risk.
We utilize our fixed-income allocation to dampen volatility and provide an element of stability in down equity markets. Therefore, we generally emphasize fixed-income risk that is negatively correlated with the stock market and avoid the most credit-sensitive areas.
We believe having a long-term focus and well-defined risk parameters can help prevent behavioral errors, including excessive market timing.
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