Once an investor understands and accepts the virtues and benefits of asset class investing, implementing an investment strategy is relatively straight-forward.
First, an in-depth review and analysis is made of the customer’s goals and objectives, risk tolerance, investment time horizon, and any other unique circumstances.
Then, the risk and return characteristics of individual asset classes and combinations of asset classes are explained, and an appropriate asset allocation is selected. One of the unique benefits of asset class investing is that it permits the accurate review of historical performance of various asset class combinations. As such, it is possible to see how a portfolio with a desired asset allocation would have performed during any historical period – say, the bear market of the early 1970s, the bull market of the late 1990s, or the recent market downturn. This is simply not possible with actively-managed portfolios.
We then implement the desired asset allocation in the most cost-effective and tax-efficient manner possible, generally using very low-cost asset class funds usually only available to large institutional investors.
First National Bank & Trust Co. follows a buy-and-hold discipline. However, because asset class returns invariably fluctuate over time, the composition of a portfolio will also change. If these movements are large enough – up or down – the risk and return characteristics can be adversely affected, and rebalancing is needed to restore the portfolio to its desired balance. This is often very difficult for investors to do on their own, since there is a natural reluctance to sell “winners” and buy “losers”. However, this “buy low and sell high” discipline can enhance portfolio returns without having to resort to the damaging market timing behavior associated with predicting future market movements.
Investments and insurance offered through the Trust Department of First National Bank & Trust Co. are not insured by the FDIC, are not deposits or other obligations of, and are not guaranteed by, any bank or any bank affiliate. Investments are subject to risks, including possible loss of principal amount invested.