Security prices are determined according to all freely available information and by fierce competition among market professionals. As such, we believe it is virtually impossible for any single investor to consistently earn more profits than other investors by choosing securities that are undervalued. In other words, market forces create an environment where picking individual stocks does not guarantee superior performance.
Modern Portfolio Theory
Unlike traditional asset management, which focuses on predicting individual stock price movements, MPT looks at the portfolio of assets based on the combination of its risk and return components. According to the principles of MPT, there is an optimum combination of investments that will bring the highest rate of return for every level of risk.
Modern Portfolio Theory (MPT) was developed at the University of Chicago by Harry Markowitz and Merton Miller and later expanded on by Stanford professor William Sharpe. Each of these professors later won the Nobel Prize in Economics for their contribution to investment methodology.
Investors can reduce their potential for loss by investing in a basket of different securities. In less technical terms, diversification means the same thing as the adage, “Don’t put all your eggs in one basket.” It is important to note that a diversified portfolio is not necessarily a properly allocated portfolio.
Strategically Designing Your Personal Legacy Roadmap℠
Bernhardt Wealth Management has developed the Personal Legacy Roadmap℠ to ensure that our clients’ portfolios are customized to their unique needs and goals, and periodically updated to reflect any changes to those needs and goals.
This process enables us to achieve three important objectives:
Academic research has provided evidence that an investor’s asset allocation decision — the choice of asset classes and the portfolio percentage allocated to each — is the single most important element in a portfolio strategy. It accounts for 94 percent of a portfolio’s performance compared with 2 percent for market timing decisions and 4 percent for security selection. Asset allocation involves diversifying among several asset groups to improve total return while reducing risk.
We create an Investment Plan Design specific to your goals and vision for your future.
Our Investment Implementation combines investing strategies that emphasize asset class allocation and minimum trading. The result is a portfolio that harnesses the power of the normal movements of the market while minimizing investment costs and taxes.
We believe that financial security and peace of mind are the results of developing an Investment Plan and then following it consistently.
Through Quarterly Reporting and systematic reviews, we are always looking for opportunities to optimize each client’s portfolio while also minimizing income taxes. We work closely with each of our clients through these three distinct phases.