Broker Check

How We Build Investment Portfolios

February 24, 2022

How we build investment portfolios

Building portfolios to manage risk and reward, additions of new money, distributions to pay for lifestyle needs is what we do for a living. We love it! We are financial geeks at heart. We educated ourselves in business, have achieved certifications with continuing education requirements, and follow and monitor the markets on a regular basis. Hopefully our clients don’t have to spend as much time and energy if they delegate the primary responsibility to us and our team.

Our team includes ourselves, other professional investors with whom we collaborate plus the firms we select to manage the day-to-day security selection. At last count, we get market research and portfolio commentaries from seventeen firms we follow on weekly, monthly, and quarterly calls and research reports. We pay independently for four research services. 

What is the global economic outlook?

It is more effective to make an individual investment decision when we put each decision in context with our global economic environment. While the United States currently makes up 59% of global market capitalization, other nations need to be monitored for population growth or decline, political stability, market valuation levels and economic rates of growth and decline.

We review the available research, collaborate with others then agree on a consensus of near term and longer-term trends of how the global economic environment will affect the performance of our portfolios.

Asset class allocation

Asset allocation is a term commonly used in portfolio construction to manage risk through diversification

  • High level

At a high level, we can view asset allocation as percentages allocated to stocks, bonds and cash. A portfolio of 60% stocks, 30% bonds and 10% cash might be referred to as a 603010 portfolio. We can use historic market statistics to determine what sort of historic return, risk and volatility may be associated which such a portfolio.

  • Detailed level

At a more detailed level we can then dive into a higher-level asset classes like stocks and asses the percentage of US vs. International stock and further refine into sectors such as Growth, Value, Larger companies, Mid-sized companies and Small-sized companies and further test returns, risks and volatility to determine how various asset classes may behave along side of one another to increase or reduce risk over historic market periods.

 In practice, we construct portfolios with tilts toward or away from one asset class or another based on the impact of the expected global market outlook.

As market then fluctuate both up and down, we must then periodically rebalance the portfolio to maintain the proper relationship between reward and risk. See our related article on Portfolio Rebalancing.

Security selection

Security selection is the process of selecting which stock or fund goes into the portfolio withing each asset class.

For individual stocks we maintain a guidance list of stocks we like within each sector (i.e. financials, industrials, technology, etc.). We use our research services to assess each company’s outlook and valuations based on income statements and balance sheets.

For funds we have our own proprietary scoring system to grade funds within each class.

We replace socks and funds when the outlook is less robust, and fundamentals show the security may be overvalued.

Tax awareness

For most of our clients, income taxes are their biggest expense. We look for tax efficiency within each security and implement tax-loss swaps to harvest losses when the markets are down to offset gains when the markets are up.

We often help with charitable giving by identifying overvalued securities with big gains that may be gifted to charities and utilizing gifts to qualified charities from IRAs to avoid income tax from required distributions.

Monitoring our results

Economic life is in an ongoing cycle of change. From global financial markets to personal family needs, portfolios may often need to be adjusted to evolving circumstances to help you reach your goals and meet your needs.

Please let us know how we may help.


  • JP Morgan Guide to the Markets, September 10, 2021