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BALANCED ACCOUNTS                                

"Allocation and timing are crucial to
investment performance...and to investment survival."

While you may hire a manager for his expertise in a specific style, or to oversee a particular portion of your funds, it is also common for a client to have multiple objectives for his assets.

For those clients, we offer a balanced approach.  Balanced accounts contain stocks, convertible preferred stocks, convertible bonds, and bonds in a proportion that is determined by agreement between you, the client, and James Pappas.

Many people talk of diversification as being important to protecting your assets in the event of a market decline.  They speak of spreading holdings out over large-capitalization, mid-cap and small-cap stocks, domestic, foreign and emerging markets, and across sectors, i.e., high-tech, financial, consumer, etc.  But they are missing an important point:  regardless of the size of the company, its nationality or its field of endeavor, they are still buying stocks.  And in a market fall, all will drop.

True diversification means holding assets that will rise and fall independently of each other, assets that have different objectives (e.g., cash flow vs. capital gain).  By nature, these holdings will respond differently to various market and business conditions.  Examples of such asset classes would be stocks, bonds, real estate and cash equivalents.

At JPIC we structure a balanced account to reflect just such diversification.  While we cannot effectively invest your funds in real estate, we are quite capable and knowledgeable in the areas of stocks, bonds, convertible bonds and cash equivalents.

A typical balanced account is 40-50% stocks, 25-30% convertibles (bonds and preferreds) and 25-30% fixed income (bonds).  But the proportions are totally variable, and an account can be structured to your individual taste.  My personal favorite blend is one-third in each arena, thus giving your assets a virtual two-thirds exposure to the stock market and two-thirds exposure to the fixed-income market.

Market conditions vary, of course, and lately convertible securities make up a significantly smaller proportion across all types of my accounts.  For income investors I have tended to replace the convertible holdings with the common stocks of utility companies.

Stock and bond selection is made along the same guidelines that we utilize in managing equity and fixed-income accounts.  If you have not read the sections on those styles, I suggest that you do so for a more complete understanding.  (Select from the menu at the top of this page.)

The objectives in this style are multiple:  growth, cash flow, and protection of principal.  You cannot expect to match gains in the Dow Jones or S&P 500 with a balanced account, but you can expect an enhanced cash flow, and some insulation from market swings.

 

                                                                                   

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