Portfolio Management Philosophy

At D3, we construct customized portfolios designed to align your goals and risk tolerance with your portfolio. Below is an overview of the key components of our portfolio construction philosophy and process:

Personalized

We will consider the following to customize your portfolio:

    • The return you need for a successful financial plan and how much volatility or risk your plan can withstand
      • Our financial planning process projects your specific inflows and outflows throughout the rest of your life and models various return and volatility assumptions to determine what return your plan needs and what volatility your plan can withstand.
          • We assess your emotional tolerance to portfolio volatility and assign a number to help align your emotional tolerance with that of a portfolio.

         

          • We review your current investments to identify how much portfolio risk you currently have.

         

        • Once we’ve identified how much risk you currently have and how much you need to take for your plan, we then ask, “how much risk do you want to take?” and then align your portfolio to your specific risk target.

 

    • Tax implications specific to you
      • Depending on your specific tax situation, there may be portfolio strategies to take advantage of. We will consider this when implementing and managing your portfolio. For more details on our technical tax considerations, see the Technical section below.
  • Portfolio draw down needs specific to you
    • If your portfolio is used to help fund your living expenses or is intended for a specific goal, we will incorporate these needs into your portfolio management.
  • Outside investments
    • We can customize your portfolio to incorporate any other outside investments. Additionally, employer provided retirement accounts (401k, 403b, etc.) are often limited in their investment options. We will consider how to best incorporate your investment options into your overall portfolio.

 

Technical

The following technical analysis will be incorporated into your portfolio:

Portfolio Construction
  • We use modern portfolio theory to assist us in constructing client portfolios. At its most basic level, modern portfolio theory mathematically demonstrates that adding multiple investments that have low correlations can increase expected portfolio return for a given level of market risk. For this reason, we start our portfolio construction process by identifying asset classes, or categories of investments, that are not highly correlated to each other. Within each asset class, it is our goal to identify well-managed pooled investments that can meet or exceed their performance benchmarks, taking into account each fund’s level of risk.

 

Investment Selection
  • Within each asset class, our philosophy is to pair actively managed investments that we believe are well positioned to outpace their benchmarks with low cost index funds to obtain low-cost market exposure. At D3, we use a proprietary scoring model to identify these funds.  Our proprietary scoring methodology is based on the following characteristics:
    • Limiting Expenses – We strongly weigh fund expenses when screening and selecting investments.
    • Historic risk adjusted returns – Past performance is no predictor of future returns, but it provides insight on how well a fund has performed during different market cycles. We also analyze a fund’s historic volatility (a measure of risk) relative to the return of the fund.
    • Qualitative information – This includes investment philosophy, manager tenure and manager track record, which gives us greater insight into how a fund may position itself in the future.

 

Tax Conscience Investing