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methodology

Our Multiple Asset Portfolio (M.A.P.) is designed to help you “sleep well at night” by achieving better returns with less risk.  The key to the MAP hedging solution is to include asset classes that do not move in tandem.    While some investments may be going down, others will be going up …thereby cushioning the volatility of the portfolio.  

At Foldes Financial Management we will determine your risk tolerance and construct your customized M.A.P. to contain the best mix of uncorrelated asset classes to accomplish your goals.  

In fact, we are able to use certain investment options today that were available only to large institutions and ultra-high net worth individuals, as recently as five years ago!

Our goal at Foldes Financial Management  is to reduce volatility, preserve principal and achieve stock market returns.  We do this by understanding the relationship between asset classes to make sure that there is a life jacket if certain investments in your portfolio are declining.

What we learned from the 2008-2009 bear market.

Not only was there no place to hide in the equity markets, alternative asset classes such as real estate, commodities and hedge mutual funds declined more than at any time since the Great Depression.

In its 2008 Annual Report, Yale framed the 2008 economic meltdown in the following light:

“In the midst of financial crises, some argue for higher allocations to risk-free assets, no doubt wishing after the fact for the now unattainable before- the- fact protection. Yet those who argue for greater protection against financial trauma ignore the opportunity costs of maintaining a substantial allocation to fixed income assets. Recall that in the 10 years ending June 30, 2008, the Yale Endowment returned 16.3 percent per year in contrast to 3.6 percent annually for U.S stocks and 5.7 percent annually for U.S bonds.”

“Diversification, called a free lunch by Nobel laureate Harry Markowitz, allows construction of portfolios with superior risk and return characteristics. In the midst of a capital market dislocation, investors hoping for the protection provided by a diversified portfolio of assets frequently express disappointment at the crisis-induced tendency of risky assets to move together. The correlations between risky asset classes move toward one during periods when investors dump holdings of risky assets of all types to fund purchases of risk- free U.S. treasury bonds.”

“In a binary world where only risk and safety matter, otherwise dissimilar risky assets behave similarly. In the Crash of 1987 and LTCM crisis in 1998, flights to quality led to temporary market disruptions that caused diversification to lose its power. After the panics subsided, diversification once again mattered, as fundamental drivers of return determined results, not the overriding concern with safety. The crisis of 2008 differs from the crises of 1987 and 1998 in breadth, depth and intensity. Yet after the current crisis passes, prudent investors will reap the benefits of a well diversified portfolio.”

Although we certainly agree with the comments from the Yale Annual report, the use of Structured Notes in our portfolios helped to limit downside volatility and provide upside leverage thus recouping losses at a faster pace. Structured Notes have proven to be an excellent addition to our MAP investment methodology. In addition, rebalancing and remaining invested given each individuals time horizon and risk tolerance have also proven to be very effective. Moral of the story is “Don’t get caught on an emotional roller coaster”. Please see the illustration below.

What we learned from the 2000-2003 bear market.

There was no place to hide in the equity markets.  Large, mid, and small size stocks, both domestic and international, all declined more than at any time since the Great Depression.  However, our Multiple Asset Portfolio, including non-traditional asset classes such as Real Estate Investment Trusts, Commodities and Hedge Funds dramatically cushioned the downturn…thus balancing the financial risk of your portfolio. We’ve learned not to be fooled by common investment misconceptions such as    “Over the long-term the stock market will always go up” or “You cannot lose money by investing in bonds”.   In fact, there have been lengthy periods when the stock and bond markets have had no growth at all.  So you must ask yourself, “Will a traditional stock and bond portfolio accomplish your goals? 

At Foldes Financial Management, our goal is to provide our clients with a MAP to a lifetime of investing success.  Don’t wait for the stormy conditions!  Put Foldes Financial Management to work for you today seeking better returns with less risk.