I recently received the following paraphrased questions from a prospective client and here were my replies.

1. How and why do you use the MSCI ACWI All Cap Index as a benchmark? Can you share the performance compared to the benchmark?

The most accurate way to determine the measurements of “the stock market” is to measure the return of all stocks in the world in exactly the proportions that they are valued in the world. The MSCI All Country World Index does just that. Any decision to deviate from investing like this index is a choice.

With the investment choices that we make, we hope to beat our benchmark over long time periods. In this way, we have deviated significantly from our benchmark.

While we do have a Buy List of what we would purchase if a client came to us all in cash, we do not have a “standard equity asset allocation.” Our asset allocations are tailored to specific client’s goals, needs, and desires. As a result, any composite or sample returns we could generate would be meaningless for your particular case. That being said, we would be happy to discuss with you what investments we typically recommend and how we craft our investment plans.

2. Why do you have a foreign allocation?

Home bias is the tendency of investors to invest a majority of their assets in companies domiciled in their home country. Investors who fall prey to this bias often ignore the benefits of diversifying into foreign investments.

In recent years, a home bias has seen an advantage for United States citizens because U.S. stocks have outperformed the world market. However, the performance difference between U.S. stocks and foreign stocks is often cyclical with one winning for a long time before it tilts the other direction. You can read more about this in “Overcome Your Biases and Invest Globally.”

Our particular foreign strategy we call Freedom Investing where we invest in countries rated high in economic freedom.

3. When and how do you update asset allocations?

Our Investment Committee revisits our strategic allocations monthly, at a minimum to implement that month’s Dynamic Tilt.

The investment decisions of our Investment Committee are automatically represented in our systems which our traders use to rebalance. Client-specific strategies then modify those targets to create each individual portfolio’s asset allocation.

Our traders rebalance client portfolios twice a quarter to the portfolio’s asset allocation. Because we do not try to time the market, we typically implement new strategies during our regular rebalancing.

4. How big is your buy list? Do I need to liquidate my current holdings? Does each client have a different blend of stocks?

Our Buy List is the list of funds we would purchase for clients who come to us all in cash. Our current Buy List is 44 low-cost index funds plus 26 individual stocks to represent Foreign Healthcare. Some of the funds on our buy list are secondary funds which are used to help with tax-loss harvesting. All together, the Buy List funds represent 30 sectors across our six asset classes.

While many investment managers require their clients to liquidate their holdings to cash, we integrate sentimental positions or those that are so highly appreciated it is not worth selling them into our investment strategies.

Our Buy List represents about 75% of our current holdings. The remaining 25% includes funds previously on our buy list where we have now selected a slightly better fund or positions that clients held before they began working with us for investment management which, because of potential capital gains taxes or other transaction costs, are best not sold.

Most of our clients hire us to implement our best investment strategy for them and their goals and, as a result, take our advice when it comes to asset allocation.

5. Are you willing to implement a strategy which isn’t your own?

We do support investment plans that are different from our own strategy. While there is a science to portfolio management, there is also a lot of artistry. We would be happy to work with you to tailor your strategy to better meet your goals and desires.

We are happy to work with you to implement alternate strategies, integrate favored holdings, or adjust our recommendations to tailor to personal preference.

That being said, there are some products we would recommend avoiding and some plans that may not be compatible with your goals. If we think the strategy you want to follow may jeopardize your goals, we will step in as fiduciaries to encourage you to rethink the plan. A parrot, although agreeable, is a bad advisor. The best advisors are people who are usually right and hold strong opinions.

Here at Marotta, our goal is to help you meet your goals. In doing this, we strive to always do what you would do if you had our time and expertise.

If you have questions you’d like me to answer, you are welcome to fill out our Contact Us form and ask.

If you are interested in becoming a client, we would be happy to meet with you. Our prospective client meetings are free and it is easy to get started as a client.

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