Growth Equity – invests in common stocks of mid- to large-capitalization companies, with an emphasis on strong earnings growth and reasonable valuations. Most of the companies are considered blue chip, or high quality, and are the leaders in their respective industries.
Dividend Equity – invests in common stocks of mid- to large-capitalization companies, with an emphasis on an above market dividend yield and strong dividend growth. The high dividend yield mitigates some of the risk exposure of equities.
Mutual Fund Allocation – invests in no-load mutual funds with superior long-term track records. Through our relationship with Fidelity Investments, we can choose from over 8,000 mutual funds without paying a load or transaction fees.
Sector ETF Allocation – invests in exchange traded funds (ETFs) which follow the sectors of the S&P 500 Index. We weight the exposure to each sector based on our assessment of the economy and market dynamics.
Index ETF Allocation – invests in low cost index exchange traded funds (ETFs). The portfolio weighting between various market index funds and index ETFs will be determined according to our assessment of the relative attractiveness of different indices based on valuation metrics.
Taxable Income – invests in United States Treasury and Agency fixed income securities, FDIC insured certificates of deposit, and taxable municipal bonds, with an emphasis given to safety of principal and a high level of income. We ladder our fixed income portfolios to reduce reinvestment risk.
Tax-Exempt Income – invests in tax-free municipal bonds, with an emphasis given to safety of principal and a high level of tax-exempt income. We ladder our fixed income portfolios to reduce reinvestment risk. We have extensive experience in the municipal debt market.
Asset Allocation – invests in a combination of one or more of the above mentioned equity and fixed income investment styles. The asset allocation is determined by LYNCH & Associates and/or the client.
Risk Assessment and Risk Tolerance
Perhaps the most significant challenges facing investors and their advisors are making a risk assessment of investment objectives and understanding the risk tolerance of the investors.
LYNCH & Associates has made a concerted effort to not offer investment management styles that would be considered higher risk relative to the markets. Performance of a management style should be viewed over a long term perspective because short term volatility has been going on since the beginning of bartering. We expect the long-term performance of our various management styles to not differ greatly from the long-term performance of the various asset classes. However, certain investment styles may have a modest short-term performance advantage because of anomalies existing in the market.
Of course, history tells us that short-term returns vary dramatically from the anticipated long-term returns. We easily accept those years’ returns that dramatically exceed the anticipated long-term returns. However, we do not readily accept those years when returns are dramatically exceeded by the anticipated long term returns. Equity returns typically have more short-term volatility versus fixed income returns. Hence, mitigation of short-term performance risk is best controlled by asset allocation – the balance of stocks and bonds in the account.
No two investors have the same risk tolerance. For most individuals the tolerance for risk should decline as age increases because of the fewer earning years remaining. Risk tolerance is personal. If your investments do not allow you to sleep at night, there is a good chance your investment strategy is too aggressive. The appropriate asset allocation is vital in managing an investor’s risk tolerance.