January 2005: The Asset Allocation Process - Airplanes and Investing: Boring is Good!

THE ASSET ALLOCATION PROCESS

Our investment strategy provides ongoing adjustments to the asset allocation (mix of stocks, bonds and cash) of each client portfolio. Each of the fund managers we have selected has discretion to adjust the asset allocation of their respective mutual fund portfolio at any time. Each fund manager adjusts their own portfolio by adding or deleting individual stocks and bonds, and building or reducing cash balances to take advantage of opportunities as they arise. Therefore, the asset allocation of your portfolio is determined as money flows into the investments perceived to be most beneficial to achieving our investment objectives.

For example, if our "A team" of balanced fund managers perceives that the best opportunities are in stocks, money flows into stocks, one stock at a time. If they perceive there is a scarcity of good investment opportunities in bonds (this has been the case recently), then money flows out of bond investments, one bond at a time. This provides a built-in, ongoing adjustment process that continuously updates the asset allocation of your portfolio.

The exact asset allocation of each specific mutual fund you own is flexible and will change over time, usually through a series of continuous minor adjustments. Although each of the mutual fund managers we have selected works independently of the others, their actions regarding increasing or decreasing a specific asset category may be similar. Notice that our team of balanced mutual fund managers presently has at this point in time collectively de-emphasized bond holdings. As the saying goes, "great minds think alike."

"The asset allocation of your portfolio is determined as money flows into the investments perceived to be most beneficial to achieving our investment objectives of profits and protection of capital."

AIRPLANES AND INVESTING: BORING IS GOOD!

Boredom is, in many instances, an underrated virtue. Sure, you don’t want “boring” when you see a movie or go to a restaurant or travel on vacation, but boring is a good thing when it comes to investing and especially when you take an airplane trip. When was the last time you heard someone wish for an "exciting" or "eventful" airplane flight?

The same holds true for investing. No sane investor seeks excitement from their investments. As the guardians of your wealth, we are not seeking excitement or the entertainment it may provide. To the contrary, we have carefully constructed an investment strategy that purposefully averts that kind of entertainment.

Boring is just fine with us as long as it gets the job done. We simply want our management of your investment portfolio to be a sound and effective way to capture profits and protect your capital, and we prefer that it not be exciting or eventful.

It is inevitable that there will be periods of investment turbulence that will come our way in the years ahead. This is an inescapable part of investing for all investors. However, we have a solid strategy in place to navigate your portfolio through such unpleasantries, and the comfort of knowing that our carefully selected team of mutual fund managers has extensive experience in successfully dealing with prior twists, turns and upsets in the investment world.

We believe that the portfolios we have constructed for our clients are the best path to meet the standard of sound and effective investing. We trust that you are as encouraged as we are with the results you have enjoyed since updating and improving our investment process and we hope you are as optimistic as we are about the years ahead.

Thank you for your business and the confidence you have placed in us by allowing us to manage your portfolio. We appreciate you and your continued support, and we wish you a healthy, joyous and prosperous 2005. ***

Greg Schultz & Bruce Grenke
© 2005 Asset Allocation Advisors, Inc.