Congratulations! You either hit the lottery, just retired, or are leaving a job where you will rollover your $1 million 401(k) into an IRA. For the sake of our newest monthly column and “game”…that’s the basic situation. All joking aside, this scenario plays out all too often and it’s not a game at all.  Most baby boomers or high net worth investors are often faced with having to decide on what the most appropriate allocation mix is. They also may find themselves in a situation where they want smart and time tested investment advice but don’t want to be sold the “flavor of the day”.

We decided to kick off 2014 with a model portfolio (“Core MPG Tactical Portfolio”) that allows an investor to track and see what tactical adjustments we are making for our very own clients. Each month you will see how this model portfolio performs against a benchmark. You will also be able to read commentary on why certain adjustments were being made. Before we outline the initial portfolio here are some basic details and rules of the road:

(1) This is not investment advice for YOU. In other words, as with any disclosure, please understand that if you wish to receive advice around your specific situation you can reach out to us or your own financial professional. This monthly feature is being used to demonstrate tactical adjustments we may or may not make for a typical portfolio.

(2) The basic portfolio size will begin using a figure of $1 million.

(3) The benchmark we are tracking and managing against is a typical 60/40 type of asset mix where 60% of the portfolio benchmark is in stocks and 40% in bonds. (More on this below*) Our “Core MPG Tactical Portfolio” will show you monthly percentages of core ETF’s (Exchange Trade Funds) that we will tactically adjust.

(4) Our “Core MPG Tactical Portfolio” is not a static model and we can also never completely abandon an asset class. The portfolio is allowed to range 35% plus or minus from its set percentage. For example:  Even if we see zero upside in Bonds for the next 10 years the least amount we could own for this model would be 5%. Conversely, if we were extremely bullish on Stocks the highest percentage we could own is 95%.

(5) We will post our results and summaries once a month but obviously several of our moves may be triggered at any time and of course clients are privy to receiving thos trades and information first.

(6) In the weeks to come you can expect to see a report and tracking system that compliments this monthly column. It’s basically the Top 5 Stocks that we like regardless of market conditions. Along with the overall asset allocation you will see here you can also get an inside glimpse as to what stocks make our list and why. Complimenting a core list of holdings with stocks and exposure to economic sectors where we are the most optimistic on is the core of our investment philosophy.

*So…what’s the deal with 60/40 portfolios and why are we using this as a benchmark? One could argue that this is the most boilerplate and commonly found portfolio mix being utilized by individuals and professionals today. There is no single asset allocation that is right for everyone but if you forced our hand to suggest one that would potentially serve the greatest amount of investors and demographics, it would be the “pie chart #3” and that amounts to a 60/40 mix.

We’re also using 60/40 as our standard benchmark because we firmly believe that although the global investment universe has changed dramatically…most investment advice has not! Ironically enough the 60/40 allocation is the basis for Modern Portfolio Theory but few people realize that the science and research behind it is actually from the 1950’s!

One very old rule of thumb for portfolio allocations used to be that you should subtract your age from 100…and that’s the percentage of your portfolio that should be in stocks relative to bonds. For example, if you are 30 years old you would theoretically have 70% of your portfolio in stocks and 30% in bonds. The challenge with this, however, is that most people are living longer and need their money to last longer as well. Many financial advisors argue that the rule should use 110 or even 120 minus your age.

Every situation will be different but for the average investor we are choosing this benchmark and welcome you to join us in tracking the journey! If you should ever have questions related to your specific personal situation we welcome the opportunity to help you. Lastly, it should be noted that as a firm we have six proprietary portfolio models that are customized to each individual’s goals, preferences, and risk tolerance. Let us know if you ever need help!

Below are the starting positions and amounts which we will compare to the static 60/40 benchmark. Come check next month and see how each is doing relative to each other!