Design Optimal Portfolio

Creating the right portfolio, one that encompasses the right mix of assets to suit your objectives, and your tolerance for risk is crucial. First we review broad asset classes (see breakdowns in the next section), then we look at diversifying the holdings in each class that you would like to invest in. Periodic readjustments of your portfolio in response to changing conditions is advisable.

Optimal Asset Allocation

Asset allocation is universally considered to be the one most important determination of your portfolio’s long-term performance and risk. StateTrust helps you clarify financial goals, risk tolerance, economic conditions, and legal accountability in order to create the best portfolio to meet your essential needs.

And we make it simpler for you to decide which asset classes you should invest in, including stocks, bonds, cash, international funds, or real estate and also, what percentages should be distributed to each category.

Broad Asset Classes

		Large Cap Equity Equity securities with capitalization matching those in the Standard & Poor’s 500 Index.
		Small Capitalization Managers invest in companies with fairly small capitalization. Average market capitalization runs about $400 million.
		International Equity Securities from Morgan Stanley Capital International’s EAFE Index including almost 1,000 securities from stock exchanges in Europe, Australia, New Zealand, and the Far East.
		Broad Domestic Fixed-Income An amalgamation of all publicly issued, fixed-rate, nonconvertible, domestic bonds. At least BBB rated, with a minimum outstanding principal of $100 million for U.S. government issues or $50 million for other bonds. Maturity of at least one year.
		Defensive Domestic Fixed-Income Fixed-income securities with an average maturity of two to five years.
		International Fixed-Income Salomon Brothers Non-U.S. Dollar World Government Bond Index (capitalization-weighted). Includes all fixed-rate government bonds in 10 countries with remaining maturities of a year or longer with outstanding amounts of at least the equivalent of $100 million U.S. dollars.
		Cash Equivalents Money market funds, Treasury bills and other investments characterized by high liquidity and safety, along with a known market value and a maturity of less than three months.
		Real Estate Mixed open/closed-end funds managed by real estate companies.

We Look At Your Input On (RATE):

R	Risk Tolerance
A	Asset Classes
T	Time Horizon
E	Expected Return

This is a simple method that allows you to recall what mix of assets you decided on for your portfolio. It also reminds you of the initial circumstances that you based your asset allocation on.

Risk Tolerance

Does the thought of market volatility and business instability cause you to lose sleep at night?
This is one of the first questions we put to you. Your answer lets us gauge your tolerance for taking risks to get higher returns on your investments. Higher returns involve to a huge degree, higher risks such as market volatility, inflation, or the dissolution of businesses. This is where optimal asset allocation plays a pivotal role. The more you diversify, the more you reduce your risk. If we find that you are disinclined to take risks, we can create a portfolio that does not place a heavy emphasis on stocks.

What rate of return would satisfy your needs?
Once we know where you stand, we can start to configure a risk/return level of investing that works just for you. One part of the process is to define your ultimate goals with regard to these returns. Will you need the money in five years for a new home, in ten years to fund a college education, or in 25 years to retire comfortably? For different goals, separate asset allocation is the key. For wealth building, your portfolio should feature more stocks. For stability, your portfolio should feature short-term bonds and money market funds.

Rebalancing Procedures

		Periodic readjustments of your portfolio are imperative if your investments are to stay on track. Markets will move up and down. And your own personal situation may see some changes in the form of marriage, divorce, employment shifts, and so on.
		Rebalancing your mix of assets ensures that your holdings stay within the boundaries that you initially delineated.

Asset Classes

Broad asset classes (see Table 1) can, in some instances, be broken down into numerous subasset classes. You decide which asset classes you want represented in your portfolio.

Time Horizon

Time can lower the risk and increase the returns on your investments. Stocks, for instance, have historically performed well over a longer period of time. If your portfolio is top-heavy with stocks then you would most definitely want to hold onto them for as long as possible, to ride out fluctuations in the market and get the best returns possible. Your time horizon is the most important factor when choosing between stock and fixed-income investments.

Expected Return

You want your assets to grow. By a specific percentage over a specific period of time. StateTrust is the answer. We look closely at the performance history of various asset classes, utilizing one of the market indices like the S&P 500 to develop a mix of assets in your portfolio that works in tandem with your specific needs.