Portfolio Construction
How then, does the Wiley Group construct
portfolios that are designed to appropriately manage risk and
return? There are three key factors on which our group focuses:
dividends, alternative investments and global tactical asset
allocation.
Dividends
Dividends are the simplest concept to explain to an
investor. By constructing portfolios with consistent,
predictable cash flow, we're able to reduce need for principle
draw-downs during early years of retirement. In choosing
investments for the portfolio, The Wiley Group examines each
individual security for consistency of past dividend payments as
well as the likelihood of success in maintaining the dividend over
long periods of time. Our analysis of fixed income
investments also balances anticipated yield with volatility in
trying to maximize the efficiency of the cash flow for each
client. Our goal is to create a portfolio with a cash flow of
approximately four percent annually.
Alternative Investments
Alternative investments are extremely important in The Wiley
Group's portfolio methodology. By including alternative
investments such as gold, managed futures and absolute return
strategies, we seek to take advantage of non-correlated assets to
reduce the overall volatility of the portfolios. Different
alternative investments have different risk/return characteristics
and may therefore provided further diversification in different
market and economic cycles. By using different alternative
investments during market cycles and adjusting the portfolios
accordingly, we attempt to dampen overall portfolio volatility and
reduce the impact of severe downturns in the global market and
economy.
Asset Allocation
Global tactical asset allocation allows The Wiley Group to seek
to take advantage of certain situations in the market and world
economy or strengths in different sectors of the market.
The strategy also allows us to reduce exposure to an asset class
that we feel will likely underperform in a given economic
environment. An actual example of a tactical asset allocation
decision made by The Wiley Group was the addition of small
positions in REITs and high yield debt in May of 2009. The
adjustment was due to our analysis of improving real-estate
and credit conditions in the economy. The ability to make
adjustments of this nature allows The Wiley Group to apply our
expertise in the markets in an attempt to improve risk-adjusted
portfolio returns over a retiree's lifetime.
Not An Exact Science
Creating portfolios for a lifetime of income is equal parts art,
science, mathematics and psychology. There is no panacea; no magic
bullet.
It is the goal of The Wiley Group to provide the greatest
probability of success in all of our clients' portfolios by
focusing on mitigating losses during weakened markets and capturing
gains during strong markets. Our long-term goal is to capture
approximately two thirds of the market gains during periods of
growth and to capture only one third of the downside when markets
contract. One of the most significant limitations of our strategy
is that during a long-term positive trend, our portfolios will
underperform the stock markets. This underperformance is by design,
since it is not our goal to exceed the long-term return of the
stock market. By reducing the short-term volatility and smoothing
returns over time, we try to both improve the statistical
probabilities and the psychological impact of negative market
returns on our clients. By educating our clients on what our group
does and how we work, it is our goal to increase everyone's comfort
level about retirement, regardless of the state of the economy.
