The DWM Allocation Approach

I was asked by an institutional client this week how we invest for dividends but at the same time seek growth when we make investment decisions. It’s a good question.

Both Growth and Dividends

When we invest we could purely seek dividend oriented assets. That would cause us to lean towards certain sectors to a point where we would have excess concentration in those areas. We could have a high dividend-oriented portfolio just investing in utilities and energy stocks, but can you imagine what the growth footprint would look like?

For that reason, we try to have a mix of sectors within a portfolio strategy to allow us to achieve growth and a dividend stream of income to help reduce volatility. The amount of dividend exposure in a portfolio strategy depends directly on the investment strategy chosen by an investor.

Allocation Dependent 

In dividend focused strategies, there may  be some positions that will pay no dividends because we believe they provide an opportunity for growth. Likewise, in growth-oriented portfolios, we may include some dividend positions in order to reduce potential volatility in the portfolio strategy. 

We think this is a prudent way to invest in a highly volatile investment environment.

Dual Purpose

Remember, some positions may have a dual purpose as well. Here’s what I mean by this statement.

As we invest in a position, it may have a particular use within a portfolio strategy (focused on growth or dividends or both). Some positions we may consider to be 75% growth focused and some will be 25% dividend focused as we build the portfolio. The converse may be true as well. 

We make these calculations to make sure we have the right mix to allow us to try to capture as much upside as possible while still providing some focus on risk mitigation. We do this on an individual basis as we insert assets into the overall allocation.

Your Portfolio 

I know this is a bit confusing. Still, I thought it was something helpful from this morning’s institutional discussion that you might find interesting as well. 

It goes to show you that constructing a portfolio is not quite as simple as many people think. One not only needs to look at the allocation but every individual asset and its role in the allocation. That’s true portfolio management and that’s what we do for you as a member of the DWM client family.

If you’re curious how your portfolio is positioned, feel free to reach out to us and we can share with you what part of your portfolio is focused on dividends and what part is focused on growth. 

College Planning Tips

On a financial planning note, we presented an online event last week outlining how college planning works for parents and grandparents thinking about putting children through school. We recorded that presentation, and it is here and available to you if you would like to listen and watch the presentation. I think you’ll find it interesting. 

https://destinationwm.wistia.com/medias/s6dmayo8lv

Disclosures: 

An institutional investor is a company or organization that invests money on behalf of clients or members.  Hedge funds, mutual funds, pension funds and endowments are examples of institutional investors.  Institutional investors are considered savvier than the average investor and are often subject to less regulatory oversight.  

Destination Wealth Management constructs portfolios and investment objectives based on asset allocation principles coupled with tactical adjustments. The firm employs research analysts with significant experience to conduct asset and economic research. DWM allocation philosophy will adjust based on market conditions and economic environment. Allocations are not static and will adjust as needed. These strategies may not be suitable for all investors. For additional information and disclosures, please refer to Adviser’s Form ADV Part 2A.

An “asset allocation” is the decision of how much to invest in each investment category or asset class. While allocations to multiple asset classes can provide diversification and reduce risk, risk cannot be completely eliminated with diversification.  There is no guarantee that the listed allocations will eliminate risk, reduce your current exposure to risk or manage your exposure to risk in a way that is tolerable for you. Diversification does not guarantee against experiencing investment losses. There is no guarantee of a specific return or dollar value. Capital loss or gain may result from the purchase of any asset.  Investment strategies implemented by DWM are susceptible to market fluctuations and have the potential for investment loss.