When constructing portfolios, LMC utilizes individual stocks, corporate bonds, municipal bonds, agencies, and treasuries to tailor each portfolio to the client’s situation. We structure the portfolios through diversification and time phasing of investments. We also take into account a client’s risk level and current security holdings.

Clients have a portfolio manager assigned to them to oversee the investment strategy of their account. All investment decisions are made through an investment committee. It is then up to the portfolio manager to determine which securities are appropriate for a client’s portfolio based upon portfolio strategy and risk assessment.  (To learn more about how we select securities for investment please go to Security Selection.)

Dynamic Risk Management

A major technique utilized by LMC when constructing portfolios is Dynamic Risk Management. Dynamic Risk Management is a system utilized by LMC to determine the appropriate level of risk for a client’s portfolio.

Dynamic Risk Management is based upon a client’s risk profile. Various factors are used when determining a client’s risk profile, such as account type, age of client, and employment status. Each factor is analyzed, weighted, and given a numerical value. When all factors are considered, this numerical value represents a guideline to determine what types of investments and allocation strategies are appropriate for that client’s portfolio.

Another factor used when determining a client’s risk profile is the amount of profit accumulated in the account. Initially, the risk profile of an account is kept lower; however, as profits in the account accumulate, the risk is gradually increased where appropriate. In essence, as profits increase in the account, so does the level of risk that the client is able to take. One is able to reallocate profits into investments with greater growth potential while continuing an appropriate strategy for the principal investment.

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Diversification of Portfolios

Diversification plays a key role in creating a portfolio to meet the client’s goals. All portfolios are diversified across time, called Time Phasing. When assets come into an account, we slowly invest the funds to avoid exposure to any one time in the market. The speed at which funds are invested is modulated according to current market conditions.

Equities

For accounts where equities are deemed appropriate, a broadly diversified account is created. Diversity is achieved by purchasing stocks in a variety of industries. By doing so, we are able to reduce the overall risk of the portfolio to any one industry. Diversification is also provided through ownership in various individual securities. As a rule of thumb, no more than 2.5% of the value of assets under management for a client are initially invested in any one security.

Fixed Income

The allocation between taxable and tax-free bonds is determined by several factors. These include, but are not limited to, the client’s tax bracket, diversification needs, and overall risk profile. The key consideration in selecting taxable versus tax-free investments is the taxable equivalent yield.

The use of fixed income securities helps to reduce the volatility of accounts while providing a steady income to the client. For the sake of diversification, bonds of varying maturities are often purchased.

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