INVESTING / Part One

At GFC, we believe that ongoing management of your portfolio is essential. While we have been strong advocates of the so-called “Buy and Hold” philosophy of the past, we believe caution is now in order if this method is used in the future. Why? Because today’s global economic environment is constantly changing: financial markets are fluctuating as never before; the political scene appears more volatile; and our monetary policy is at times unpredictable. If we couple these ingredients with the thousands of investment choices available, we conclude that constant supervision is paramount.

OUR INVESTMENT MANAGEMENT CYCLE
First, we determine your investment profile through a series of questions that assess your future needs and objectives, time horizon, risk tolerance, expectation of return, and your overall attitude toward investing. Based upon your answers, we design an asset allocation policy in an attempt to increase your potential portfolio rate of return while simultaneously retaining or reducing your risk exposure. To accomplish this, we diversify your portfolio among various asset classes within a variety of styles in an attempt to create a more efficient portfolio. We then select a handful of institutional money managers from the thousands available through a time tested screening process and our own objective analysis. Reports are prepared quarterly to update you with reference to performance, portfolio changes, dividends and interest payments, capital gains distributions, withdrawals and deposits. Lastly, we make adjustments, re-balance or reallocate your portfolio annually or as needed. See the graphic below.

LONG-TERM INVESTING

We suggest that trying to “time” the market is an exercise in futility. We believe also that taking a short-term perspective may lead to untimely decisions. When the equity markets or stocks experience a prolonged rise, investors tend to be overly enthusiastic and buy! (See the chart below.) When the same markets or stocks decline, investors tend to fear the worst and sell! To counter this inherent emotion, we recommend a long-term investment policy.

The Emotional Wave

By focusing on the long run, the probability of a favorable result is greater as shown in the two charts below. These charts illustrate the short-term ups and downs of the MSCI World Index as well as its increase in value over time. For short-term financial needs, risk-free cash equivalents should be considered, not the stock and bond markets.

ASSET ALLOCATION
Asset allocation is the process of developing a diversified portfolio by mixing three basic, but different asset classes (stocks, bonds and cash) in varying proportions given your liquidity needs, long-term goals and tolerance for risk (Asset Allocation shown below.) According to the “Financial Analysis Journal,” in any one quarter, over 90% of portfolio success is driven by the asset allocation decision, not by market timing or stock selection (Portfolio Success shown below.)

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