What is RAV's Investment Philosophy?

Many financial firms take a common approach to investment management, using asset allocation as a fundamental approach to portfolio construction. However, RAV believes that today's financial markets require more creativity and original thinking.

The traditional approach to asset allocation is primarily focused on combining stocks and bonds in varying percentages to work towards a desired outcome over time. Advisors might recommend that a conservative investor have 60% in bonds and 40% in stocks, while a more aggressive investor might opt for a mix of 70% stocks with the remainder in bonds. The stock portion of the portfolio is usually split up between small and large company stocks, along with foreign stocks. The bond component is normally comprised of corporate and government bonds, and possibly municipal bonds. The allocation is then rebalanced occasionally to bring the portfolio back in line with the original allocation plan.

We believe this traditional approach is flawed. The investment industry has created an asset allocation model that is predicated on the recent history of stocks and bonds stretching back to the early 1980's. There were three significant factors that created the financial success of the 80's and 90's.

Interest rates were very high in the early 1980's, and subsequently declined over the next 20+ years giving rise to a strong bond market since bond prices rise when interest rates decline and vice versa.

Inflation was in double-digit territory in 1980 and inflation slowly subsided over the ensuing 20+ years.

Stock valuations were at historical lows in 1982 creating the platform to launch stock prices into the stratosphere until 2000.

Today, these three factors cited above are at the opposite ends of the scale. Interest rates are at 40-year lows, stocks are trading at lofty valuations, and inflation is at extreme lows. Why would you expect the financial markets to behave as they did in the 80's and 90's?

RAV believes that the dynamics of the financial markets are very different today than they were 20 years ago. In addition to examining historical trends, we also need to look ahead at what the future may bring. In today's financial markets, nothing is having more impact than the economic and societal changes taking place in China and India. These countries are influencing trade, interest rates, and corporate spending in the United States.

Interest rates have remained stubbornly low creating a challenge for income-oriented investors searching for yield. Bond prices will decline if interest rates rise. Stock prices have been trading sideways, and prominent analysts are forecasting single digit returns on average for the stock market for the next 5-10 years. Inflation and rising energy prices are making commodities and hard assets attractive again.

Nobody knows with certainty what the future holds, but we think it is possible to take advantage of these changing dynamics, by adding non-traditional investments to a core portfolio.

What type of asset classes does RAV consider non-traditional?

Depending on the unique profile of each client, RAV may use the following asset classes to complement a traditional portfolio of stocks and bonds:

Real Estate
Foreign Bonds
Preferred Stock
Timberland
Merger Arbitrage
Strategic Mutual Funds
Short-selling Strategies
Commodity Funds
Floating Rate Funds

Some of these may not sound like non-traditional investments, but they do exhibit different characteristics than the normal portfolio allocation of stocks and bonds.

In summary, our tactical asset allocation is designed to