​With changes in asset allocation and investment vehicles comes changes in both investment returns and market volatility. The appropriate asset allocation is unique to every investor, and is a combination of many factors including your investment fund’s purpose (will you need the monies for retirement, college or emergency expenses and what is your fund’s time horizon); other cash sources available to you, and your overall risk tolerance to list a few.

Here is where a qualified investment advisor can be of help in discussing the pros and cons of different asset combinations and allocations, and based upon their insight what overall mix of stocks, bonds and cash will best achieve an investor’s short and long term goals.

A money manager should report the portfolio’s rate of return to the investor on a regular basis, no less than annually. This rate of return should be total – meaning not only interest and dividends collected by the investments but also the growth or loss in overall market value in the account over a given time period.

A net rate of return is reporting the portfolio’s performance after all management and advising fees have been deducted – giving the investor an “in your pocket” rate of return. This “after all expenses” rate of return is the preferred way investors should ask to see performance calculations for their portfolios.

A good investment advisor will provide a benchmark to which to judge your portfolio’s rate of return against – for if you have no comparison, you have no way to know if the rate of return given to you is competitive. The best benchmark comparisons are “blended”, meaning it is a combination of stock, bond and cash indexes that reflect the asset allocation of your portfolio. With a blended benchmark you have the best opportunity for an “apples to apples” way to compare your portfolio’s performance.

We at Copper Harbor provide each client with a blended benchmark to which to compare their net rate of return performance.

Municipal bonds are debt instruments offered by states and/or their local municipalities to raise capital for a variety of projects such as road construction or to build a new school. The majority of municipal bonds have the advantage of paying interest to its investors federally tax free. The interest paid on these bonds normally does not have to be declared as income on the bond owner’s annual 1040 income tax return. Because of this tax advantage, municipal bonds tend to offer slightly lower interest rates that other “taxable” bonds but not so low that it does not provide benefits to high income tax payors. Investors that are in lower tax brackets many times are better off purchasing taxable/corporate bonds rather than municipal bonds. In Wisconsin (and many other states) just because a municipal security is federally tax-free does not automatically mean it is state tax-free. Most Wisconsin-based municipal bonds are subject to Wisconsin income tax, but not Federal tax.

Corporate bonds are debt instruments offered by a business or corporation to raise capital to further advance company expansion or fund research and development costs. Interest earned on these bonds tend to be slightly higher than municipal bonds as you do not get the federal tax free treatment for the income you are paid nor do you have the taxing authority of the state or municipality to ensure the repayment of your investment once the bond comes due. For this added investment risk, you typically are paid slightly higher interest amounts on your corporate bond investment.

U.S. Treasury issues are debt instruments issued by the U.S. Government to pay for government programs and infrastructure. These bonds pay interest that tend to be lower than corporate bonds as U.S. Treasuries are backed by the full faith of the federal government. These bonds are generally considered to be one of the safest investments you can own. Because of this lower investment risk, Treasuries tend to pay lower interest amounts than other taxable bonds. State income tax advantages are also available to holders of U.S. Treasury securities.

As mentioned earlier, the appropriate asset allocation (mix of stocks, bonds and cash within an investor’s portfolio) is unique to every investor. By their very nature, stocks are volatile investments with the risk of loss of principal at any given time. While stocks can also provide historically much greater returns than bonds, the risk associated with these investments is very real.

Bonds can also have negative returns (especially in times of sharply rising interest rates), but the range of volatility experienced historically by fixed income investments is much smaller than with stock investments. Bonds have a place in almost every portfolio where diversification and stability is sought. Bonds provide an anchor to the portfolio that pays a steady stream of income to the investor.

When interest rates are low, many investors are not attracted to bonds due to their small interest yields. However, during a stock market downturn fixed income instruments are much better at holding their value and provide a steady stable of assets that can be sold with little volatility to provide needed cash if stock prices remain low for an extended period.

We at Copper Harbor look to all investment classes when creating a client’s asset allocation. We recognize that asset diversification allows for more portfolio stability. No asset class excels or lags indefinitely and diversification can help smooth returns.

A “small cap” stock to us at Copper Harbor Investment Advisors is one which has a total market capitalization of less than $5 billion. Many of the stocks in this category are not well known outside of the state/region in which they operate and are thus the most risky category of domestic stock investments.

​With over 5,000 different mutual funds available to investors, the odds that you will be able to pick the one fund that will outperform all others for an extended period of time is slim. Even if you use a broad index fund, you will always have some kind of market risk-the risk that your investment will not be in the best performing asset class for a period of time.

We at Copper Harbor Investment Advisors always suggest that an investment portfolio have a mix of investments that gives the investor exposure to different areas of the market that when combined fit their risk tolerance and long term investment goals. This diversification allows the investor to participate regardless of what market sector is in favor as long as the risk profile for a particular sector is within the investor’s risk tolerance.

How often you meet with your advisor to review your portfolio is purely client driven. Some clients like to be updated as frequently as quarterly, while others maybe once a year. Any time period more frequent than quarterly would not be as productive as minimal changes are likely on a monthly basis. However, you should, at a minimum, meet at least annually so that you are comfortable that the portfolio is staying within the given investment objective guidelines and that you fully understand any changes that have been made since your last review. Additionally, larger changes in lifestyle such as retirement updates, job changes, inheritances should cause frequent communicates with advisors between meeting. These life changes may cause investment changes to reflect current circumstances. Additionally, investment advisors should communicate with clients if significant investment changes may be required due to changes at sub-advisors’ business, management changes, etc.

We at Copper Harbor have clients that meet as frequently as quarterly to those that meet as needed. The timeframe we use is normally set by the client to accomplish their investment goals and comfort level.