Morningstar Advisor - April/May 2013 - (Page 10)

On Topic What Strategies Do You Use to Control Risk? Let us know your thoughts at magazine_editor@morningstar.com Asset allocation and diversification. It may be old fashioned, but it works. Juli Erhart-Graves, CFP Worley Erhart-Graves Financial Advisors Indianapolis, IN We discuss numerous risk strategies in our investment committee that are then embedded in our portfolios. We diversify across asset styles and types. More specifically, on the fixed-income side, we have a mix of foreign and domestic strategies, primarily short durations and of high quality. We also mix in emerging-markets bonds. On the equity side, we incorporate investments that are intended to provide absolute returns, long/short strategies, foreign currencies, gold, (sometimes other metals), real estate, and hedge-fund strategies. We also employ unconstrained equity strategies, which tend to add a non-correlation component to the mix. We view the portfolios daily and rebalance monthly. Elyse D. Foster, CFP Harbor Financial Group Boulder, CO In the February/March issue, we printed Chris Weber’s comments about active strategies. We got our signals crossed about the meanings of active strategies and active funds that put his comments out of context. To set the record straight, here are his correct comments: I am a firm believer in actively managed funds or funds of funds where the asset categories are clearly defined. I am not a fan of funds that have too much flexibility and of advisors who use their own active strategies. Funds that are style-specific have enough room in their space for sector rotation and asset selection, so I would rather managers not try to guess which sector will outperform the market. It is also hard to compare or benchmark performance of those funds over time. That said, I could see a running a portfolio sleeve with an exceptionally gifted manager. I use passively managed funds when tax efficiency is a concern or when there are a lack of choices on the active side. Chris Weber, CFP Cetera Investment Services Northfield, MN Quick Poll (given Feb. 21, 439 responses) 1 Are you increasing, decreasing, or leaving the same the amount of risk your clients are taking in their portfolios? Increasing 16.9% Decreasing 29.9% Leaving same 53.2% 2 To adjust the amount of risk your clients take, do you use strategies other than diversification and altering their allocations to stocks and bonds? Yes 58.7% No 41.3% 3 Do you believe diversification is still an effective tool to reduce risk in a portfolio? Yes 93.6% No 6.4% 4 Which is a riskier investment right now, bonds or stocks? Bonds 62.4% Stocks 37.6% 5 Is the world becoming a riskier or safer place in which to invest? Much riskier Being from North Carolina, I think the best risk-mitigation strategy is to keep our clients’ money away from Butner, N.C., which is where Bernie Madoff spends his days in jail! On a serious note, we use long-dated Treasurys, managed futures, cash, alternatives, and sometimes inverse ETFs to manage risk. Todd Misenheimer, CFP, CIMA, AIF Gordon Asset Management Durham, NC 10 Morningstar Advisor April/May 2013 7.5% Riskier 42.6% Same 42.2% Safer 7.5% Much safer 0.2%

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2013

Morningstar Advisor - April/May 2013
Contents
Contributors
Letter From the Editor
The Pursuit of Happiness and Financial Advice
What Strategies Do You Use to Control Risk?
Driven to Succeed for Clients and Family
How to Assess a Portfolio’s Bond Risk
Luck, Skill, and Investing
Investments á la Carte
Investment Briefs
Investing’s No- Brainers Have Costs
A Defensive Ride
Risk On/On Risk
The Risk of Being Overconfident
Year of Living Dangerously
The Risk-Parity Approach
A Guide to Mutual Funds Running Risk-Parity Strategies
What Moats Tell Us About Risk
Risk’s Wake-Up Call
Seeing Is Believing
Why Investors Lag the Returns of Their Funds
Liquidity Signals
Pump Them Up
Golden Oldies Keep on Truckin’
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Our Social Blind Spot

Morningstar Advisor - April/May 2013