Portfolio Design

At Lewis Wealth Management, there are three main components to every portfolio:

  1. Equities (stocks)
  2. Fixed income (bonds)
  3. Alternative investments.

How these three components are allocated is the key to long-term investment success for the client.

Equities

Equities are the primary driver of long-term growth in a portfolio, but the potential of that growth comes at a cost. The volatility in the stock market is at least six times that of the bond market – and we have certainly experienced our fair share of volatility in the last few years! Also, equities can experience long periods of time where they do not earn their historical average. Equities require patience, proper diversification, and long-term discipline.

Fixed Income

Fixed income serves two functions: 1) it provides interest income to the investor, and 2) it substantially reduces the volatility of the portfolio. As with equities, fixed income diversification is also important. We consider a wide variety of high quality bonds, like government, corporate, municipal, mortgage-backed, and foreign bonds at various maturities.

Alternative Investments

Alternative investments employ strategies designed to reduce overall portfolio volatility and provide a source of market neutral return. They also provide downside protection and returns that are not correlated with other asset classes. Alternative investments can include hedging strategies and other asset classes such as real estate and commodities. At Lewis Wealth Management, we have access to conservative, private investment strategies that can be used to augment the risk/reward profile of a portfolio. These investments come with their own set of risks and are therefore optional. That being said, in recent years a number of these strategies have been launched in publicly traded mutual funds that have the low minimums, transparency, liquidity, and the same regulatory oversight of regular stock and bond mutual funds and are therefore much easier to include in client portfolios.


Over the last 80 years…

the Standard & Poor’s 500 has an average annual rate of return of 9.4%. In comparison, over the same period of time, long-term corporate and government bonds have averaged about 5.6% per year during the same period of time.