Investment Management

Money Doesn’t Have to be Complicated.

By leveraging a disciplined investment process, you receive transparency of information, seamless proactive service and the trust and accountability you need to pursue your financial objectives.


In-House Investment Support

Using a combination of the latest technology and our team of financial professionals, we regularly monitor your portfolio to ensure you are taken care of. While working with your advisor, you will build out your model and continually evaluate your portfolio in order to help you towards your goals.

How It Works

Our investment approach can best be described as Tactical Asset Allocation.  While we believe that it is not possible to “time the market” on an ongoing basis, it is possible to exploit changes in economic conditions by adjusting portfolio holdings.  For this reason, we develop two “portfolios” for each client.  One is a benchmark portfolio.  This benchmark is what we measure our progress against.  The other is the actual, or working, portfolio.  While the benchmark remains static, the actual portfolio is adjusted to current economic conditions, and then re-balanced on a regular basis to maintain those current allocation targets.  Investment Management is a separate service from Financial Planning.

Investment Philosophy and Approach

At Navion Financial Advisors, we take a goals- and risk- based approach to investing, and have broken the investment process down into seven distinct steps.


Goal Assessment

As Yogi Berra once quipped, “If you don’t know where you’re going, you’ll wind up somewhere else.” If you don’t know what you’re trying to accomplish how will you know when you’ve accomplished it? This is one of the most crucial steps you can take. This step is best accomplished by preparing a financial plan. At the very least, you’ll need to know what rate of return you are trying to achieve and what will be the timing of the cash flows in and out of the portfolio.

Once we have a plan in place, we “stress test” this plan by reducing the returns assumption to the point where the results of a rigorous simulation[i] begin to show plan failure.


Determine the Risk Tolerance

After setting your goals, the focus turns to the subject of risk.  Specifically, how much risk must be assumed in order to accomplish the desired goals?  To be useful, a risk assessment must be both quantitative and qualitative.  By this I mean that not only is it important to know how much risk could cause a plan to fail, but we also need to know how much risk the portfolio owner can stand before abandoning the current plan of action.  Therefore, while questions as to time horizon and self-descriptive risk tolerance are important, it is also important to include questions that address behavioral finance.  We quantify your risk tolerance on a scale of 1 to 100.


Create the Benchmark (Policy) Portfolio

Now that we have defined our goals and determined our risk tolerance, we determine where these two “intersect”.  It would be useless to construct a portfolio with target goals that are higher than can be attained with an acceptable amount of risk.  Conversely, it would be dangerous to build a portfolio that incorporates more risk than is necessary to accomplish the goals.  Therefore, we will now construct a “portfolio” which is designed reflect your individual risk score.  We call this your “nominal risk”.


Create the Statement of Investment Policy

The Statement of Investment Policy will govern how the portfolio is managed. At its most basic, this document will include the objectives, time horizon, risk tolerance, expected return, benchmark portfolio, prohibited transactions, investment parameters (such as tax concerns), and any other relevant information which may influence how we manage a portfolio.

The Statement of Investment Policy should be used in conducting portfolio reviews. Change in circumstances may require that the document be updated.


Create Target (Implemented) Portfolio

While the policy portfolio is designed to address goals and risk tolerance, some variation from this will occur due to current economic conditions. Think of the policy portfolio as two dimensional (risk and return), while the target portfolio is three dimensional (risk, return, and what is going on in the world). The policy portfolio asset allocations will be over weight, target weight, or under weight. It is these target allocations to which the portfolio will be re-balanced periodically.

First, we determine our “investment posture”. We believe that there are times to be more aggressive (within the client’s overall risk tolerance), and times to be more conservative. These can be due to market conditions, or whether the client is on track to accomplish their goals. If the client is well ahead of target, then we can afford to scale back on risk. The target portfolio allocations will be modified as market risk and economic conditions change.

Risk-Based Portfolio Allocation

Example 1: Client nominal risk score is 65, risk level conditions in market moderately high.  Targeting 80% of client nominal risk.

Example 2: Client nominal risk score is 65, risk level conditions in market moderately low. Targeting 120% of client nominal risk.


Implement the Target Portfolio

Next, investment selections are made.  We draw on a universe of over 70 proprietary, actively managed portfolios that are available to us through our strategic alliance with Carson Partners. We select one or more of these based on their theme, level of risk, and portfolio size.

If there is an existing portfolio that we are being asked to manage, we will review the existing investments according to these standards.  Decisions to sell existing positions are made by weighing the benefits of making a change for policy or performance reasons, or keeping an investment that does not meet these standards in order to minimize tax liability, or because of sentimental reasons, as in the case of an inherited asset.


Monitor the Portfolio

The portfolio will be reviewed for adherence to allocation targets and risk management on a regular schedule.  The underlying strategies and holdings within strategies are monitored on an ongoing basis.  Changes in any of the characteristics mentioned above will warrant review and possible replacement.

To make changes due to allocation percentages, a strategy within the portfolio must be at least 20% off target.  Thus, if a strategy has a target of 15% of the portfolio, that strategy will need to be either less than 12% of the portfolio or more than 18% before a change will be made.  Obviously, if a strategy is removed from the portfolio, something will have to be found to take its place in order to maintain allocation targets.

The importance of a consistently applied process cannot be overstated.  There are many variables in the investment markets that are beyond our control.  Our process provides us with a ready response as those variables change, so that we might better help our clients accomplish their goals, and assist them in making the most of their lives.

How Do I Know Which Investment Strategy Makes the Most Sense for Me?

There are many factors that affect choosing an investment strategy. The first set of factors begins with you, our client. Our disciplined discovery process is key to understanding the right investment strategy for your specific situation. Once we have the answers from our clients, we begin to think about the second category of factors which involve the overall health of the economy.

There are many factors that affect choosing an investment strategy. The first set of factors begins with you, our client. Our disciplined discovery process is key to understanding the right investment strategy for your specific situation. Once we have the answers from our clients, we begin to think about the second category of factors which involve the overall health of the economy.

Here are common questions we ask as we walk through the investment planning process:

  • What is the goal of the funds? Are they to be used now, at some point in the future, or are they funds you would like to leave as a legacy?
  • What are the expectations you have for these funds when it comes to risk and reward?
  • What part of your portfolio do the funds we are investing represent? What percentage do they represent in your liquid portfolio and overall portfolio?
  • Are the funds qualified for tax deferral?
  • What is your comfort level with investing, or how much investment expertise do you have?

The initial discovery process has to be thorough, which is why top financial advisors will include financial planning, not just investment management, as part of the services they provide to their clients. We believe all of our clients should have a financial plan, which is why we view it as the skeleton of the process.

Once we get to know our clients and we have walked through the basics, we decide whether we need to create the asset allocation plan or simply find the spot in which the funds we are going to invest fit within an already established plan. To determine our path, we ask ourselves:

  • What is the current state of the domestic and global economy?
  • What is the state of the local economy?
  • Where are we in the business cycle?
  • How are certain industries and sectors performing relative to each other?
  • What is our team’s overall expectation of the market?

By combining the client factors and economic factors, we are very comfortable to make the asset allocation decisions. This is when we determine the answer to one very important question:

Do I need to make an allocation to irreplaceable capital?

Irreplaceable capital is the amount of money we must protect from a downturn in the market. This is different than clients not wanting to lose money; no one likes to lose any money. And while that seems obvious, there are reasons why some may overreact to investment losses.

  • Emotionally, we all feel losses more than wins.
  • No. 1 is not only an emotional response but also a logical response. If you lose 20% of $1 million, or $200,000, you will have $800,000. If you only earn a 20% return on the $800,000, you will have $960,000! So you need a 25% return on your money to get back to the original investment. You need more money to get back to where you started. Feel that discomfort?

Irreplaceable capital is money that must be preserved as much as possible because if it’s not, you may suffer a major change in lifestyle, which could even change the entire financial plan.

Once we have made a choice on irreplaceable capital, we then need to go back to our client factors. Do you need the income from the portfolio in the near future? If so, then we will choose a strategy which provides income. We may choose a combination of the tried and true dividend paying stocks, some capital appreciation and bonds. We may also incorporate more advanced investment strategies that require very experienced management and trading.

Some clients may choose an allocation of growth and alternative investments because of the potential for return and diversification. These two allocations may be a smaller part of the portfolio or a larger part, this all depends on timing. We may view domestic investments as more or less risky, and we may use global investment strategies to ensure we have diversified investments in the portfolio. The key here is to educate and prepare clients regarding the added risk.

Time plays a critical role in developing strategies for retirement. During retirement planning sessions, you may be in the first stage of accumulation and have recently began to save and invest. In this situation, we may start with a more growth oriented strategy approach. However, this all depends on the answers to the initial client questions. Just because you recently started investing or you are a younger person, it doesn’t mean we automatically put you in a growth strategy and send you on your way.

If you are approaching retirement age, we may choose to sell growth investments. Let’s pretend we have a couple of great years in the market, we may save two years’ worth of funds needed to cover fixed living expenses and move them into an irreplaceable capital strategy to preserve your wealth in case there’s a market downturn the year you retire. It will allow us to preserve a cushion of time in which we don’t have to sell other shares at a lower price point.

When it comes to strategy selection, it is important to keep in mind the two categories in building a disciplined investment process. Combining investment management and financial planning provides us with guidance to create the right roadmap. We must focus on both the client category factors as well as the economic factors and work with each in tandem to create the best investment strategy for you.

This content is for general information only and is not intended to provide specific advice, an endorsement or recommendations for any individual. No strategy assures success or protects against loss. To determine what is appropriate for you, consult with an advisor. Alternative investments can be volatile and you should be aware that you may lose all or a portion of your investment. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards. A diversified portfolio does not assure a profit or protect against loss in a declining market. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.