| Investment Philosophy |
| 9 Lowell Street, Beverly, Massachusetts, 0915-3652 - Phone 978.922.9961 - Fax 978.922-9961 Conflict Free Financial Planning, Investment Counseling & Financial Education |
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Most investors are loss averse. They don’t mind taking some risks as long as those risks don’t result in losses. Unfortunately in order to
earn good returns you must expose yourself to some risk. We help clients achieve their investment goals while exposing them to as little
risk as necessary. All of our clients are asked to complete a series of questionnaires designed to help us construct their personal risk
profile.
Risk/Reward Trade-off
From 1926 – 2007 the average annual return of the stock market has been approximately 10.4% a year while long-term government
bonds have averaged 5.5% and Treasury Bills have averaged 3.7%. Over this period inflation averaged approximately 3.0%. The long
term return of stocks has been almost twice that of bonds and almost three times that of bills. If you adjust these returns for inflation
stocks have returned almost three times as much as bonds and ten times the return T-Bills. While the returns of stocks has been
significantly higher than that of bonds or bills over the short term stocks have been much more volatile (risky). Investors wishing to
capture the higher returns of stocks must expose themselves to more short term volatility.
Risk Control
Asset Allocation: The most important decision an investor will make in building and maintaining an investment portfolio is to determine
how much of their assets to invest in stocks, bonds and money market securities. As your exposure to stocks increases your potential
long term return increases and short term volatility also increases.
Category Diversification: Once an investor has decided how much to invest in stocks, bonds and money market securities they must
decide what categories of stocks, bonds and money market securities to include in their portfolio.
Security Diversification: The next step in the process is to select the specific securities to fill these categories.
Time Based Diversification: Even the most diversified portfolio can lose value over the short term. Holding a diversified portfolio over
time will lessen the impact of short term volatility. Over time good years cancel out the bad years. The longer a portfolio is held the lower
the risk of loss.
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| Philosophy |
| 9 Lowell Street, Beverly, Massachusetts, 01915-3652 - Phone 978.922.9961 - Fax 978.922.9961 Conflict Free Financial Planning, Investment Counseling & Financial Education Adam Smith David Ricardo |
| Copyright © 2009 Thomas J. Costantini, Monserrat Advisory Services, LLC, All Rights Reserved. |