What is your investment management process?
We will meet with you face to face to determine your needs. What are your goals, your risk tolerance, your time horizon? We determine your sensitivity to taxes and any personal investment preferences. From there, we develop an investment profile and create an Investment Policy Statement (IPS) tailored just for you.
The IPS is a written understanding of the investment objective, goals, and guidelines for your portfolio. It is the framework within which investment decisions will be made commensurate with your investment objective, risk tolerance, investment restrictions, governing instrument and establishes a basis to evaluate portfolio returns.
We will recommend a target investment strategy for you. We have seven portfolio strategies, one of which will be assigned to your portfolio:
- All Equity. Primary investment objective is appreciation of principal. Income is not important. Stock exposure is 100%.
- Aggressive. Primary investment objective is appreciation of principal. Income is secondary. Stock exposure ranges from 70% - 90%.
- Growth. Primary investment objective is appreciation of principal. A moderate level of income is needed. Stock exposure ranges from 50% - 70%.
- Balanced. Investment objectives are to preserve principal purchasing power and generate moderate income. Stock exposure ranges from 40% - 60%.
- Conservative. Primary investment objective is a high income. A secondary objective is preservation of the principal purchasing power. Stock exposure ranges from 0% - 30%.
- Conservation. Primary investment objective is preserving the dollar amount of the principal. Income is secondary. Stock exposure ranges from 0% - 15%.
- All Fixed Income. Primary investment objective is generating income. Appreciation of principal is not important. Fixed income exposure is 100%.
AAFMAA monitors your portfolio continuously to make sure it continues to meet your investment needs. We keep you informed, periodically meeting with you to review investment performance of your portfolio. The portfolio is adjusted as necessary.
Back to top
What is your investment philosophy?
AAFMAA’s investment philosophy is doing what is right for our members. We base all of our decisions on a patient, long-term perspective. We believe that the single most important determinant of investment success is a proper asset allocation that matches your long-term investment goals; timeframe, and ability to tolerate short-term market volatility.
Investment success based upon a proper asset allocation is supported by numerous historical studies. One of the most widely referenced studies (“Determinants of Portfolio Performance” by Gary Brinson, Randolph Hood and Gilbert Beebower) showed that 90% - 95% of the returns generated by a large sampling of pension funds over a certain 10-year period were due to their asset allocation rather security selection. In other words, an investor’s exposure to a certain asset class was more important than the specific securities within that class.
While we are firm believers in the power of a long-term, focused, and properly allocated portfolio, we are also keenly aware of the need to mitigate risk whenever possible. As such, diversification strategies are key to our investment process. By dividing a portfolio carefully among selected asset classes, an investor has the ability to maximize potential return at an acceptable level of risk.
We believe that clearly defined investment objectives, financial goals, investment time horizon, and risk tolerance reduces the impact of emotion (fear vs. greed) on your potential return.
Our investment process uses a combination of mutual funds, as well as individual stocks and bonds when constructing your portfolio. We use actively managed mutual funds (where the managers seek to outperform an index through investment selection) whenever we feel that the management of that fund can deliver better risk adjusted returns, net of taxes and fees, than a passive index approach could. When we cannot find an appropriate active fund, we will use passive index funds to obtain our desired asset class exposure.
Prior to any mutual fund, stock or bond being purchased for a member’s portfolio, we conduct a rigorous review and assessment process. Once purchased, all investments are monitored continuously and adjusted as needed.
We believe systematic rebalancing of assets is essential to maintaining the consistency of an investment account’s returns and risk profile. We do not use a periodic rebalancing method where portfolios are rebalanced at specific times of the year. Instead, we use a percentage-based methodology where portfolios are rebalanced whenever set parameters are reached. When an asset classes exceeds a specified percentage of the portfolio we pare back that class and move it into an under-represented class.
Back to top
What will Investment Management cost?
Investment Management Fees:
- 1.00% per annum on the first $500,000
- 0.80% per annum on the next $500,001 to $2,500,000
- 0.60% per annum on the next $2,500,001 to $5,000,000
- 0.40% per annum on the next $5,000,001 to $7,500,000
- 0.20% per annum on the next $7,500,001 to $10,000,000
- Fees negotiated on accounts above $10,000,000
Trust Administration Fees:
- 0.20% per annum in addition to Investment Management Fees
Irrevocable Life Insurance Trusts:
- $1,000 per year (during lifetime of insured)
*The Investment Management Fee for an account invested 100% in fixed income is a flat 60 basis points (0.60% per annum).
**This communication is not a covered opinion as defined in Circular 230 and is limited to the Federal tax issues addressed herein. Additional issues may exist that affect the Federal tax treatment of the transaction. The communication was not intended or written to be used, or relied upon, by the taxpayer, to avoid federal tax penalties.
Back to top